Building Better Credit with Secure Credit Cards
Your credit profile is your resume to the financial community. Credit rebuilding tools are key to having good credit. Certain credit scores are required to qualify for a loan of any type including a mortgage, vehicle, or installment loan. Your score may either help or impair your ability to qualify or negotiate the best terms on things like auto insurance as well!
So the question remains: How can I build or rebuild my credit history and increase the odds of qualifying for the things I need? While not the only part of the equation, utilizing a secured credit card can help build a solid payment history. Which in combination with other best practices, can increase your credit score over time.
How do they work?
Simply stated, a secured credit card is similar to a traditional credit card with one major difference. The card issuer usually requires a security deposit to open the account which protects them against any possible losses. Generally, the amount of credit granted is equal to the amount of the deposit, with some exceptions. So if you apply and provide a $500 deposit and meet the required underwriting guidelines, you will be provided with a credit card with a $500 limit. You are now free to use the card as you would an unsecured card. As long as meet the requirements such as paying at least the minimum payment, the credit card will remain active.
So how secured credit cards benefit me?
Borrowers who have faced a major financial event or might not meet the traditional requirements for opening a non-secured card may still be able to qualify for a secured credit card. The key is to ensure that the card issuer reports your payment history to the three major credit bureaus, Experian, Equifax, and Trans Union. Of course, the other very important requirement is that you make your required monthly payments on time each month, and you should try to keep the balance under 30% of the allowable limit whenever possible.
What are the pitfalls?
The first and most obvious is that you must deposit funds in order to receive approval and to “fund” the account. So unlike a traditional “unsecured” card, you must have funds available. But this is really a small price to pay for the ability to build credit history in lieu of financial difficulties. The other thing to watch for is high interest rates and high fees. In some cases, issuers charge at or near the state maximum interest rates on purchases, transfers, etc.
So be sure to shop around, do your homework and read the fine print. If you need help selecting a card or have questions, give us a call today at 888-927-7760. We’ll answer your questions and offer some suggestions on great secured cards!