by Joseph Kenny | 06/3/09
If you're rebuilding your credit, you'll probably be quite excited when you reach that critical benchmark - the day when your credit has been restored to the point where you once again qualify for a credit card!
Of course, we don't mean to suggest that you can just get another credit card and go out and commit the same mistakes all over again. Rather, it's a matter of opportunity. With a credit card in the right, mature, knowledgeable hands, it can be used as a force of good, to make monthly payments and purchase appreciating investments; when coupled with a sound strategy for paying off the entire balance each and every month, you have a recipe for consistent positive reporting to the credit agencies, and consequently, a rising credit score. In other words, using a credit card to restore your damaged credit.
However, when that day arrives, be quite careful. You don't want to repeat the mistakes of the past and end up worse off than ever before! Likely, if you're getting to the point where you once again qualify for credit cards, you've been receiving offers in the mail. You know, those mailers that claim you've been "pre-approved" for high-limit cards with low annual percentage rates (offers that hardly ever work out exactly like that, by the way). Chances are good you've even been looking through these, and identified a few that seem like good deals to you.
Be careful, however. The force of advertising is a strong one, and that's exactly what this is. Credit card companies spend a massive amount of their annual operating budget on bringing in new customers, and these mailers are one of the primary ways in which they do so. As such, they're specifically crafted to look attractive and appealing. You have to read the fine print.
One of the most important things you want to consider is the annual percentage rate. Ideally, you'll be paying this card off each and every month, and as such, never have to deal with interest rates much, if at all. However, in the worst case scenario, when you have to use your card to get yourself out of an emergency, you don't want to be stuck paying a huge rate of interest. In any case where you're choosing between a lower limit, or a lower annual percentage rate, take the lower rate each and every time.
Secondly, try not to be swayed by so-called "bonus" offers. Many credit cards now offer incentives such as cash back or frequent flyer miles. What they aren't telling you is that these offers usually come hand in hand with higher annual interest rates, and they just aren't worth it. "Cash back" usually amounts to one percent or less, and what good does that really do if you're accruing twenty times that in monthly interest on each purchase? Once again, be skeptical of the value of incentive programs.
If you've gotten to the point where credit card companies are once again courting you - congratulations. This means you've hit a milestone on the road to recovering your credit rating. However, you must also be careful. This is a pivot point where you can easily go either back: back into the murky depths of debt, or forwards, towards a debt-free future. Choose carefully and always read the fine print!