How To Use a Credit Card to Rebuild Bad Credit

by Barry Choi August 9, 2017 / No Comments

Having a good credit score is one of those things you always hear about, without necessarily understanding what it means. Your credit score is a number between 300-900 that determines your creditworthiness in the eyes of lenders. A higher number means you’re less risky and can manage debt responsibly.

If you’ve ever had any kind of credit or recurring payment such as a credit card, car loan, or student loan, you have a credit score. If you don’t know yours, it only takes a few minutes to check your free credit score. If your score is low, you’re likely guilty of one or more of the following: chronic overspending, carrying a lot of credit card debt, or ignoring bill due dates or missing payments to the point where they go to collections.

Abusing credit cards can get you in trouble, but using them properly is actually the easiest way to rebuild your credit. If you want to improve your poor credit score, here’s how you can utilize a credit card to do so.

Consolidate debt with a balance transfer or low interest credit card

Making on-time payments is the most important of the five factors that determine your credit score, but the amount you owe is just as important. If you’re carrying balances on multiple cards, it can be tough to stay on top of paying everything off. This is why low interest credit cards that allow you to balance transfer are so appealing.

As the name implies, low interest credit cards have a lower interest rate compared to standard credit cards. The optional balance transfer means you can transfer the amount on your current credit card to a low interest card and immediately take advantage of the lower rate. To be clear, the point of using this type of card should be to pay off debt, not using it to buy more stuff. Here are two of the best low interest credit cards on the market.

American Express Essential Credit Card

If you want to reduce your debts fast, the American Express Essential Credit Card is for you. It comes with a balance transfer interest rate of 1.99% for the first six months. After the promotional period ends, your interest rate goes up to 8.99%, but that’s still less than half of the standard interest rate of 19.99% that most credit cards charge.

American Express Essential Credit Card

  • No annual fee
  • Low interest rate of 8.99% on purchases, cash advances, and balance transfers
  • For new cardholders: special 1.99% introductory rate on balance transfers for the first 6 months (available only at time of online application)
  • Access to American Express Invites

BMO Preferred Rate MasterCard

With a purchase and balance transfer rate of 11.99%, the BMO Preferred Rate MasterCard is popular since it’s accepted at over 30 million locations. The added benefits of free extended warranty, purchase protection, and zero dollar liability are also handy and help offset the $20 annual fee that comes with the card.

BMO Preferred Rate MasterCard


  • Annual fee: $20
  • Low interest rate of 11.9% on purchases, cash advances, and balance transfers
  • Zero dollar liability, plus free purchase protection and extended warranty

Rebuild your credit with a secured card

If your credit score is really low and you don’t qualify for traditional credit cards, you’ll want to apply for a secured credit card. With secured cards, you deposit money onto the card which can then be used to make purchases. It’s similar to a prepaid card, but the major difference with secured cards is that your payments are reported to the credit reporting agencies. It’ll take a while, but with secured credit cards, your credit score will go up.

A great secured credit card to consider is the Home Trust Secured Visa Card. Your credit limit is determined by the amount you deposit. It can be as little as $500 or as high as $10,000. Once your funds are loaded, it acts like any other credit card, so you can make purchases in-store, online, and over the phone. Even if you’ve been discharged from bankruptcy or are currently in a consumer proposal, you can still apply for the card.

Home Trust Secured Visa

home-trust-secured-visa-card

  • No annual fee
  • 19.99% interest rate
  • Credit limit is set at the amount of the security deposit you put down
  • Applicants who are in a consumer proposal or have been discharged from bankruptcy are eligible to apply at any time

The bottom line

Using credit cards can be a useful tool to help rebuild your credit, but you need to make sure you pay off any debt that has been sent to collections first. As long as you have a debt in collections, you won’t be able to rebuild your credit score. Once that’s been taken care of, it’ll be a slow process to get your credit score back up, but it’ll be worth it.

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