Secured Cards to Rebuild Credit

Secured Cards to Rebuild Credit

Published on January 5, 2016 7:30 pm

increasing credit scoreThose with bad credit often got there through job loss, medical bills, and other hardships we can't always control. Whatever the case, instead of dwelling on the past, it's best to focus on the future. The catch-22 is you can't apply for a credit card with bad credit and get approved. But with secured you can, no matter how horrible your history! Know these 3 tips when using a credit card for rebuilding credit:
Tip #1 – Contrary to popular belief, you don't need to carry a balance to improve credit. What's reported to the credit bureaus is the monthly statement balance, regardless of whether you pay in full or not.
Tip #2 – Having a high balance is not better. A small portion of your credit score is based on what percentage of your available credit limit you are using. It's best to never use more than 30% of your credit limit at any given time, according to advice given by FICO.
Tip #3 – After your card is open, setting up automatic e-payments is recommended. That ensures payments will always be on-time.

Secured Credit Cards to Rebuild Credit

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Consider these factors when choosing your secured credit card...

  • Reasonable Fees – Fees should be expected, but some banks will rip you off with outrageously high fees. The application fee and annual or monthly fee should be reasonable and when combined, over the course of the first year the fees should cost no more than $120 (and hopefully a lot less).
  • Flexible Security Deposit – We all know higher credit limits are better, but maybe you can't afford much for your security deposit right now. The best cards should give you some flexibility. For example, you can start with a $500 deposit for a $500 limit, but later on when you can afford to do so, you should be given the ability to raise that to a $3,000 limit by adding more to your security deposit.
  • Reports to Credit Bureaus – Of course it's important that your account is reported to the bureaus. However, banks that offer secured credit cards (or any card for that matter) have to pay to report customer records... for that reason, some unscrupulous banks won't report because they're being cheap, make sure you watch out for them.

Remember... if you have really bad credit (multiple delinquencies, charged-off accounts or a bankruptcy) then secured credit cards to rebuild credit are likely your only option at this point. Secured cards are certainly not the most desirable type of credit card to carry (no rewards, fewer benefits) but keep your account in good standing. In a year or two you can probably be considered for a regular credit card that doesn't require a security deposit. However, it would be counterproductive to apply for a regular credit card with bad credit because every time you apply for credit (whether it be a card or loan) there is a credit report inquiry. Having too many inquiries will hurt your credit score. So, it's better to wait before applying for a non-secured credit card until you have established a good credit history and have a good chance of being approved.

Editorial Disclosure: The editorial content on this page is not provided by any bank, credit card issuer, airline or hotel chain, and has not been reviewed, approved or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.