Which Cards Will Not Help Your Credit Score? |
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If you are rebuilding your credit, using your credit cards may
help your credit score.
However, there are some types of credit cards that will have no effect
on your score despite costing you interest charges. Stay away from
these cards when you are looking to boost your rating.
Prepaid Credit Cards
Prepaid credit cards are actually gift cards operating under a
different name. With this type of credit, you must first deposit the
funds you wish to spend in an account, and you will have to pay a fee
to do so. There is no "lending" involved with these cards, and they
therefore will not affect your credit score. Prepaid cards are a
solution only if you need plastic to make purchases (such as Internet
purchases) but cannot secure a line of credit by any other means.
Secured Credit Cards
If you place a large amount of collateral down on a credit
card, you may be surprised to see that the risk bears very little
actual reward. For example, you may take a home equity loan of $10,000,
but your home is worth $200,000. This is a very low loan-to-value
ratio. The lender is assuming essentially no risk with this type of
loan. If you fail to repay the debt, the lender can force you into
foreclosure and actually be rewarded much more than if you had repaid
your debts. As a result, lenders may not report this loan to credit
agencies.
Credit Cards in Another Name
You may think you can rebuild your credit by adding your name
to the account of your parent or spouse. In reality, you are simply
building his or her credit. The account is 100 percent tied to the
other individual's name as far as the credit agencies are concerned.
You are given permission to use this credit, but it is that person's
responsibility to repay the debt, and it is therefore his or her reward
when the debt is paid.
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