Using secured credit cards to rebuild credit is one option many people don’t consider. Some may ask, “Do secured credit cards help with rebuilding credit? This is a great question! Let’s examine this topic in more detail so that those struggling with credit issues can learn some tips to rebuild their credit.
Trying to borrow money when credit is not so good can be very challenging. Credit cards are great to have when unexpected expenses arise. Credit cards are necessary to secure transactions such as car rentals. No wonder so many people in the world own at least one credit card. Those who are trying to rebuild their credit may not have an easy time trying to get a credit card. There are options available, and customers can rebuild their credit. The road to rebuilding credit and attaining good credit starts with having and using credit responsibly.
How Secured Credit Can Help You Rebuild Credit
Secured credit cards offer customers a way to rebuild credit. Cardholders have an available line of credit. Cardholders do not have to have good credit histories in order to receive a secured credit card. Credit card companies are willing to offer this opportunity to customers because customers’ cash deposits secure the line of credit. The credit card is secured so the lender does not have to worry about repayment in the event cardholders have financial troubles.
This is an amazing opportunity for customers who have been denied credit in the past. Many credit card companies report payment histories to credit agencies. Doing so helps to reestablish credit history so that cardholders can get approved for credit in the future. Consult with the credit card companies to determine if they report credit history to credit agencies. Apply for another secured credit card that does if the secured credit card does not report payment history to credit agencies.
Here is an example of how secured credit cards work. Customers apply for a secured credit card. The lender determines the cash deposit that customers are expected to pay to secure the credit card. The line of credit may be equal to or double to amount of the deposit. Customers use the credit card responsibly. Payments must be made on time to rebuild credit. Customers should check their credit to make sure that their payment history shows up on the credit report.
After proving to the lender that they are not a credit risk customers may receive approval for an unsecured credit card. Unsecured credit cards come with better interest rates and reduced fees that may be more attractive to customers. Unsecured credit card activity is reported to the credit agencies.
The downside to owning a secured credit card it that there may be an abundance of fees that cardholders must pay before using the credit card. In addition to the security deposit, cardholders may have to pay application fees and annual fees. Additionally, late fees and over-the-limit fees may be higher than the fees on unsecured credit cards.
Tips When Rebuilding Credit with a Secured Credit Card
- Make sure that payments are made on time each month. One late payment can harm credit since credit card companies report payment history to credit agencies. Make the secured credit card bill payment a priority.
- Cardholders should only charge small amounts on the credit card. Do not make large transactions that cannot be repaid in a timely manner. Only charge amounts that are easy to pay back.
- Pay for transactions before receiving the bill. Either pay the entire balance or pay the bill down to help rebuild credit. This process helps customers to lower or eliminate high interest rates, and it proves to potential creditors that cardholders can repay debts. Try to keep a small balance on the credit card to prevent the credit score from lowering. Try to pay the full balance on the credit card every other month but not each month.
- Move to an unsecured credit card as soon as credit card companies allow it. Many credit card companies offer customers unsecured credit cards after they prove that they are worth of extending this type of credit card.
- Do not settle for excessive fees to own a credit card. Rebuilding credit does not mean that customers have to take the first offer that comes available. These offers may include fees that deduct from the credit card balance, making the available credit smaller. Excessive fees can cost cardholders a great deal of money that may make the credit card not worth owning.
Secured credit cards ownership has pros and cons that customers must consider before applying for credit. These credit cards offer a wonderful opportunity for those with past credit issues to rebuild their credit to create a strong financial future.