Secured Credit Card
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www.personalfinancebudgeting.org
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Secured credit cards are seen as an excellent way to build or rebuild your credit score. If you have never had a credit card before, filed bankruptcy or suffered a bad credit rating because of previous financial mistakes, apply for a secured credit card. The case might be that this is as well the only credit card you can get as people with poor credit history usually don’t qualify for a regular card.
A secured credit card is bounded to a bank deposit account. The amount of money you’ve put into the deposit is the credit limit for that card. If it’s a saving deposit you might be earning a small interest on your money as well.
So if you have $100 in you account you will only be able to spend $100 from your card. Please note that sometimes your credit limit might be a percentage of the deposit and not the whole amount. Bigger deposits (thus bigger credit limit) will you re-establishing your credit rating faster. Credit ratings are calculated on the basis of several scores (the amount you owe, payment history, etc) and a score for your credit limit is one of them – it makes sense a reliable debtor would be allowed higher limit and banks love good debtors.
Check carefully the interest rates offered by the credit card issuing company as if you are considering an unsecured credit card. Secured credit cards are not interest free. Still an annual interest charge apply and if you don’t pay off your balance in full every moth you can harm your credit rating instead of healing it. With this in mind dig through the offers until you find the card with the most competitive interest rate.
Pay special attention to any fees applicable (application fee, annual fee, etc). They greatly vary among different lenders and it’s a matter of consistency to get the best deal.
Allow up to a year to recover your credit rating, usually it takes a few months to see some improvement. You can either check your credit rating or watch out for unsolicited credit card offers in your mailbox.
Using a secured credit card is beneficial for one more reason:
People with no credit history learn to be disciplined when it comes to their finances. Secured credit card shows the reality - how difficult it is to maintain a high credit score, how important it is to spend carefully and how to get serious about your monthly payments.
For the ones re-building their credit rating is a lesson to learn. Even several months without your regular unsecured credit cards can be real hell and the experience will (hopefully) make you more responsible about your finances in future.
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