Secured Credit Cards Can Help Rebuild Credit Scores
Credit Score Bad? You’re Not Alone
If your credit report has taken a hit recently, you probably feel bad about it. That’s understandable. But you may find some small consolation in the knowledge that you’re far from alone. Last month, FICO Inc. published figures that show that 25.5 percent of all consumers have a credit score of 599 or below, a level that is likely to prevent them acquiring a mainstream credit card, mortgage, or personal loan. Yep, that’s one in four Americans, a total of almost 43.4 million people.
Of course, there’s more to life than a pristine credit report (health, family, happiness, love…the list is endless), but modern life is tough without the advantages that a good credit score brings. Have you ever tried booking a hotel room or renting a car without a credit card? Worse, some employers now routinely carry out credit checks for new hires and existing employees, so your job could be at stake.
So how do you go about rebuilding your score?
Secured Credit Card–A Useful Credit-Building Tool
Unsecured credit cards are probably the most common form of card. You’re given what amounts to a line of credit and the lender takes a chance on your defaulting. As their name implies, secured credit cards are very different. That’s because there’s no risk to the lender–your credit limit is the amount you deposit in your account–up-front.
Yes, that sounds a lot like a prepaid card, but it is a little different. When Gerri Detweiler, a personal finance advisor, appeared on Fox recently, she explained that the sum you pay up-front is closer to the security deposit you pay a landlord when you move into a rented home. You get it back when you close the account or when the issuer migrates you to a normal credit card.
What’s important about a secured credit card is that the issuer normally reports your account to credit bureaus, so–if you use your account responsibly–you are able to rebuild your credit score.
Choosing a Secured Credit Card
Even though they represent little or no risk to the issuer, many secured credit cards carry high fees. And a few of them appear to be little more than scams designed to fleece the already vulnerable. So take care when choosing one. Here are four golden rules to follow:
- Make sure you understand all the card’s fees and costs before you commit yourself.
- Check that the issuer is FDIC insured (it has your money, and you don’t want to take the hit if it goes bust).
- Choose a reputable lender, and Google it to make sure other customers haven’t been gouged.
- Ensure that your account will be reported to all three of the big credit bureaus.
Secured Credit Card Use
The best practice rules for secured credit card use are the same as those for ordinary cards–always pay on time and always try to pay off your balance in full each month.
And certainly make sure you don’t find yourself carrying forward a balance that represents a large proportion of your credit limit. The money you’re using may be yours, but the credit bureaus don’t differentiate between secured and unsecured credit limits, and your score can suffer if you use a high proportion of your available credit (it’s called your “credit utilization ratio”). Earlier this year, a Boston Globe money expert recommended avoiding carrying forward a balance that’s greater than 30 percent of your credit limit.
If you’re thinking of applying for a secured card, you could start by exploring these:
- Public Savings Bank Secured Card
- New Millennium Bank Secured Gold Visa® or Mastercard®
- Applied Bank® Secured Visa® Credit Card
Disclaimer:The information in this article is believed to be accurate as of the date it was written. Please keep in mind that credit card offers change frequently. Therefore, we cannot guarantee the accuracy of the information in this article. Reasonable efforts are made to maintain accurate information. See the online credit card application for full terms and conditions on offers and rewards. Please verify all terms and conditions of any credit card prior to applying.
This content is not provided by any company mentioned in this article. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any such company. CardRatings.com does not review every company or every offer available on the market.
Published (Modified )