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Climbing the credit quality ladder

Some credit cards actually help you turn bad credit to good

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When you have bad credit, it can seem like you are stuck in a terrible cycle.

Because of your bad credit, you can only get approved for loans and credit cards at higher interest rates. When these higher costs then make it difficult for you to pay your full or even minimum balances on time, your credit is negatively impacted. As a result, your credit never improves.

Besides just giving up, what can be done? If you are willing to take the time and act responsibly, credit cards designed for those with less than perfect credit can help you essentially graduate to better credit.

It may help to imagine credit cards arranged by credit quality on a ladder. As you climb the ladder by showing a consistent track record of on-time payments and improve your credit, you are more likely to get approved for the plastic at the next higher rung.

On some websites like CreditCards.com, credit card products are grouped according to credit quality. Since inquiries into your credit history can weigh on your credit score, it makes sense to apply for a credit card you expect to be approved for based on your perceived credit quality, as well as to only apply for limited numbers of loan obligations during any given year.

Starting at the base of the ladder, consumers with bad credit will find that this category incorporates a number of credit card types. Secured credit cards present a good first choice when applying, since many offer guaranteed approval, with card activity still reported to the credit bureaus.

These types of card products require a security deposit and provide a credit limit initially equal to the amount of that deposit. Over time the issuer will extend the credit line beyond the deposit amount as the cardholder demonstrates good repayment behavior.

As you continue to make on-time payments and pay off as much of your card balance as possible each month, the issuer should be reporting your responsible card use to the credit bureaus.

Doing this for some time should help get your credit score to move a little higher every month or quarter. But it is critical to stay current on all your monthly financial obligations, even rent and utilities.

At this point, you may have moved up to having fair credit. From this level on the ladder, you should be able to qualify for a regular unsecured credit card designed for those with less than perfect credit instead of simply a secured credit card.

Even after successfully applying for a regular credit card, you need to continue to avoid maxing out your account or making any late payments, since doing so would potentially cause a drop in your credit score.

Through continued conscientious behavior, your credit should continue to rise. Eventually, you may qualify for a credit card for people with good credit. At this stage, you have many more card options to choose from. You also should be able to qualify for other types of loans, which should provide additional opportunities to demonstrate your responsible repayment behavior.

Still, you must continue to stay especially in control of how you use your credit cards. Meanwhile, since a history of smart credit use benefits your score, you will want to use any bad credit or fair credit cards you still have now and again just to keep the accounts active.

Finally, you have made it. All your careful hard work has helped you get your credit score to the much-desired excellent credit category, the top of the ladder. This ladder-climbing process could take several years, but it can be well worth the effort.

Moving from bad credit to good or excellent credit can save hundreds or even thousands of dollars each year by qualifying you for the lowest interest rates available on credit cards, auto loans and mortgages.

Published: June 15, 2007


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Updated: 12-10-2016


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