If you are thinking how a secured credit card can help rebuild bad credit, worry no more as we take thru a review of how you can rebuild bad credit with a secured credit card. Past credit mistakes can be very hard to overcome, especially when new creditors and lenders are unwilling to give a second chance. This is when you are to re-establish your credit by getting a secured card.
What is a Secured Credit Card?
A Secured credit card, functions just like a regular credit card. All you are required to do is swipe your card to make purchases that deduct from your credit limit. You can then repay the balance with monthly payments or all at once.
How is a Secured Credit Card Different from Regular Cards?
With a secured credit card, you are required to make a deposit against the credit limit on the account. The security deposit stands as collateral held in the case of default on credit card payments.
Secured cards have a credit limit of 50% – 100% of the security deposit you make.
Secured credit cards most times have fees that regular credit cards do not have. This includes application fees, processing fees, and annual fees.
How you can use Secured Credit Cards For Bad Credit Rebuild?
Good Payment Habits:
Cultivate good payment habits to avoid bad credit which comes as a result of poor payment history. This the number on how to use Secured Credit Cards For Bad Credit Rebuild
Report to a Major Credit Bureau
Ensure that the creditor reports to at least one of the three major credit bureaus. This is because, if the creditor does not report to any of the credit bureaus, the card may not be beneficial to you in re-establishing your credit because future creditors won’t see your good payment history. If the card issuer does not report your payments to the major credit bureaus, it won’t be included on your credit report or reflected in your credit score.
Avoid Creating Debt with Your Card
Once you are approved, you should avoid using your card to create debt, bearing in mind that the purpose of the new Secured credit card is to help you build a positive credit history. It is advised that you use your Secured credit card to make small purchases that you can pay in full each month. If you can’t afford a purchase, you are advised not to charge it.
Moving to Unsecured Credit Card
After one or two years of timely payments, many credit card companies convert your Secured credit card to an unsecured card. If you can’t convert your Secured credit card, you may get approved for an unsecured credit card with another creditor after 12 months of on-time payments.
If you apply for a credit card and get denied, you should avoid putting in more applications as this will make you come off as being desperate for credit. What to do instead is to keep making timely payments on your Secured card and then apply again within six months. The credit card issuer will send you a letter intimating you on why you’ve been denied and you can use this information to act.
In summary, be wise in choosing a good secured credit card. Avoid cards with high fees as this can greatly reduce your deposit and ultimately, your credit limit. Note; the best-secured credit cards have low fees and good interest rates.