Q: I have bad credit and I'm on unemployment benefits. I just need a low credit limit to help in emergency situations. I can pay small charges back right away. What do you recommend?
It sounds like you may already be in an emergency situation. Even if an additional credit line could help even out your cash flow woes, you may get better results by rebuilding your credit and shoring up your savings.
Between economic pressures and tougher regulations, banks no longer have a lot of incentive to issue credit cards to unemployed Americans. Despite the fact that you've got enough cash coming in to cover your bills, few credit card issuers will risk offering you an unsecured Visa or MasterCard right now. You can take three steps right now to make yourself an attractive candidate for a fair credit credit card in a year or two.
1. Stockpile your cash savings. Don't let an arbitrary savings milestone frustrate you. Instead of shooting for "eight months of expenses" or "a thousand dollars," just focus on scraping every extra cent from your benefits into a savings account.
2. Start using a value-added prepaid debit card. Instead of using a checking account that can leave you exposed to overdraft fees and service charges, I recommend shifting your daily spending to one of American Express' new prepaid charge cards. You can reload your card for free via Direct Deposit or through a linked bank account. Adding up how much you'll spend on the card each month will force you to budget the same as you should with a regular credit card, building a strong habit for the future. You'll also have a stronger sense of where your money is going each week.
American Express will review your reloading and spending habits to see whether you can qualify for a traditional Green Card after a year. In the meantime, you'll enjoy many of the same benefits as their other cardholders, such as extended warranty and purchase protection programs.
3. Build a positive credit profile with a secured credit card. To qualify for a credit card, you will need to prove that you have overcome your bad credit history. With an initial deposit as low as $200 and an annual fee under $50, you can open a secured credit card from reputable lenders such as Capital One, Bank of America, or Wells Fargo. Don't expect to use the card for more than one small transaction each month -- enough to show some positive activity on your credit report.
Following through all three of these steps won't be easy. Conquer this challenge, and you'll start to qualify for some of the best credit cards on the market. Though, by that time, you'll have learned how to get by without needing the extra credit.
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