Building Good Credit with Secured Credit Cards
September 16, 2007 · Print This Article
I’ve gotten several emails lately from people who need to build credit, either because they are young and don’t have any credit history, or they have had a bankruptcy or bad credit in the past.
One of the best ways to build or rebuild your credit is with secured credit cards.
What is a secured credit card?
A secured credit card is where you give a bank a security deposit - $500 for example - and receive a credit card with a $500 limit on it. You use the secured credit card the same way you would any other credit card and make regular monthly payments to pay off any money that you spend using the card.
The credit card is secured against the money you have in the bank so there is no risk for the lender. They simply keep the security deposit if you default on the credit card. Most banks will even give you interest on the deposit you made to secure the credit card.
How this helps to build credit:
This is a great way for people with bad credit or with no credit to build up their good credit. First, there is no risk to the bank because you are giving them a security deposit, therefore they are willing to extend credit to you and approve your credit card.
Second, if you make regular and consistent payments on the card then you build a positive credit history on you credit report. Making regular and consistent payments is one of the top criteria looked at when determining your credit score, so this strategy will go a long way towards building your credit.
What to watch out for:
You must be on time with your monthly payments - every month - or you’ll just be damaging your credit more. Also make sure you don’t go over your limit on purchases. This can be easy to do because secured credit cards do not allow large credit limits. Going over your credit limit can also hurt your credit score.
Many secured credit cards are free to open, so be wary of companies that offer a low interest rate but a high annual fee.
Building good credit:
If you use your secured credit card often and make regular payments then you will start building good credit history. After a year or so you can apply for other credit, such as a non-secured credit card or a department store charge card. If you manage these properly too then you are well on the way to establishing good credit.
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yes,I agree there is no wrong if people is rebuilding credit If you have bad credit, it is imperative that you take steps to repair your credit rating as soon as possible. Although it seems like a difficult task, if you don’t repair your credit, your credit rating will remain the same for up to seven years, causing you all sorts of inconveniences, and making it hard to get loan, mortgages, credit cards, or do things that require a good credit history. Obtaining a secured credit card is an important step in credit repair.
It can be hard to get a hold of credit cards with a history of bad credit or a low credit score but there are lending companies that provide such services. Online financial services of this kind seem ubiquitous nowadays, so credit cards are much more accessible. Thanks for the info!