Pay Money to Improve Your Credit

>> Wednesday, September 29, 2010

The idea may sound absolutely counter-intuitive: paying money to improve a less-than-perfect credit situation. But that's exactly what can happen if you decide to ditch your unsecured credit cards and go forward instead with a prepaid credit card.

Unsecured credit cards can present a mine field of danger for many people. It's too easy to continue to increase your balance because many credit card companies offer credit line increases even when they are not requested by the customer. Of course, you don't have to spend any of that extra money on your credit card, but it's a temptation. The average household in 2008 had nearly $16,000 in debt on 3.5 credit cards, according to industry statistics. Too many credit cards and high balances are two of the ways to lose points on your credit score.

By relying on secured or prepaid credit cards instead, you can take control over your credit card spending. Secured credit cards have credit limits that are based on the amount of money the customer deposits on the account. Avoid secured cards that offer additional credit on top of your deposit after an introductory period. The idea is to decide how much you can afford to spend each money and to deposit only that amount with the credit card company.

Secured credit cards can improve your credit in several ways. By ditching your unsecured cards, you are continuing to pay at least the minimums - and more if you are able -- each month. Regular, on-time payments can help increase your credit score. As you lower the balances on those unsecured cards that's another way to increase your credit card. Additionally, you are only spending what you can afford on the secured credit card, so the balance is under control and that is also a positive factor for your credit score.

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