Once you descend into the realm of bad credit, it can be very difficult to get yourself out again. There is a lot of assistance to do this, however: everything from bankruptcy and credit counseling to simply paying everything off over time.
After you eliminate the debt, you must work to improve your credit score again. One of the best ways to do this is by getting new credit lines and using them responsibly. Of course, many lenders will not give credit to those with bad credit histories. Secured credit cards are the answer.
What is a Secured Credit Card?
A secured credit card is a line of credit that is secured by an amount of money being held in savings account, usually by the card issuer. Basically, in order to get a secured credit card, you must deposit a certain amount of money in this savings account before you get the credit card.
This amount can be equal or less than the credit limit you receive. Sometimes, you must deposit it directly with a check, other times it will be billed to the credit card account.
Except in some extreme circumstances, everyone is eligible to get a secured credit card. Even with a very bad credit score, you will be able to get one to start rebuilding your credit. Since there is a deposited amount of money that will cover the entire credit line, the creditor assumes little risk.
Building Good Credit
After paying off all of your old bills, getting a secured credit card is the best way to improve your overall credit score. You must use it responsibly, however, and pay off your balance every month.
This will not only create a positive credit account, but will ensure that you do not fall into debt again. Building good credit is important if you ever wish to buy a house, finance a car, or anything else that requires interest payments.
Things to Look Out For:
1. Annual Fees
By shopping around for your secured credit card, you should be able to find one with no, or very low, annual fees.
2. Application Fees
Like annual fees, application fees should be low or nonexistent. The more fees you have to pay, the less money you have.
3. Security Deposit Interest
Your security deposit for the credit card should earn interest for you. The credit company should disclose this in writing.
4. Interest Rates
People with bad credit get higher interest rates, but you should still shop around for the lowest rate you can get. Also, after a period of paying your bill responsibly, you should call to request a lowered interest rate.
5. Periodic Review
Many secured credit card companies will review your credit line periodically to see if you now qualify for an unsecured card or a credit line increase. Both of these things can be very good for your credit score.
Getting a secured credit card can greatly help you if you have a bad credit history. By securing the credit line, the creditor has little risk, so this type of credit card is available to everyone.
As long as you get one that reports to the major credit bureaus, your credit score will rise consistently when you use the card responsibly. Secured credit cards are the first step in recovery from bad credit.
Pros & Cons of Secured Credit Cards
Let’s look at the pros of having this type of credit card, and then we will look at the cons of having one of these things. I am sure that you have seen ads all over the place about secured credit cards.
What is a secured credit card? This is a card with a secure line of credit, which is usually a limited amount such as 500.00 for example. This means that when you reach the credit limit, your card is no longer active.
This is a plus, as you do not have to worry about going over your pre set limit. With timely payments, your credit limit is likely to be extended to a higher amount. You know exactly how much credit you have on your card, no more and no less. You are also able to use it as a regular credit card.
Now let’s look at the negative side of this. These cards can be quite a hassle. The interest rates on these cards will often be higher than on a regular credit card. There are severe penalties for going over your credit limit and your card can be rendered inoperable if you miss even one payment.
And to be blunt, some issuers of these types of cards are little more than rip off artists, selling merchandise to you that no one would want, making the card, in effect worthless to you and you have a very high yearly fee that you must pay.
Rip off artists and scammers are everywhere. Nowhere is this truer than the secured credit card business. There are several companies that have been highlighted in the news and been warned about by consumer watchdogs. Yet they still bilk people out of their hard earned money.
Some as stated before want you to use the credit card to purchase merchandise. What they don’t tell you is that you have to pay half the price up front and then use the card to finance the rest. No wonder that companies that are legitimate, and there are plenty come up against troublemakers like these.
There are plenty of secured credit card companies that are legitimate and do everything aboveboard, the only problem is that sometimes they are few and far between.
If you are looking at one of these companies, then make sure that you know the companies background, it’s rating with the BBB and check for fraud messages. Once you check those, you will have a better idea of what is legitimate and what is not. Bear in mind there are plenty of aboveboard companies. You just have to do your research in order not to be scammed and ripped off.