Apply for Secured Credit Cards Great Credit Rebuilding Strategy
Many people decide to apply for secured credit cards because they suffer from a poor credit score after suffering financial difficulty. This is a great and proven credit rebuilding strategy.
Financial mistakes in your history make it increasingly difficult to get a car, house, or any other type of loans. While most institutions are unwilling to take a risk with you, when you apply for secured credit cards it can help get you on the right track to rebuilding your credit history.
A secured credit card is very similar to a regular credit card. It essentially is utilized in the same manner as a regular credit card but requires the cardholder, you, to provide a deposit against the credit limit of the account. This deposit is utilized by the creditor to mitigate any risk against you defaulting on your payments. Typically, a secured credit card has a limit in the range of 50% to 100% of your deposit. For example, if you were to deposit $1000, your credit limit would be in the range of $500 to $1000.
Secured Credit Card Fees
In addition, many secured credit cards charge fees such as charges for the application, processing, and an annual fee. However, it is wise to be aware of these fees because they will substantially reduce the amount your deposit on the card and effectively reduce your credit limit as well. Compare all benefits and fees and make you best choice.
A weakened credit rating is the result of consistently poor paying habits. If you are unable to get credit through normal avenues, simply apply for secured credit cards as an excellent opportunity to redeem your poor payment habits. Because it is impossible to demonstrate your good faith without having a credit card and making payments, a secured card is an excellent way to go.
However, to successfully use one for this purpose, you must be sure that the issuing creditor reports to all three major credit bureaus. Otherwise, the card cannot help you in reestablishing good credit because your payment history is not recorded in enough places to be satisfactorily evaluated by the prospective creditor. Also, your payment record could not be incorporated into your overall score or appear on your credit report.
Credit Rebuilding Strategy
In the event your application is approved, keep in mind that the primary purpose of your new card is to rebuild, and eventually create a positive credit history. Use the card for small purchases that you can pay in full only, as these will help you to rebuild your credit. Under no circumstances are you to use the card to purchase an item that you cannot pay back in full!
Moving from a secured to unsecured credit card requires effective credit management and the development of good credit habits. By successfully making timely payments on your secured credit card, some companies may allow you to qualify for an unsecured card within one to two years.
Bear in mind that it’s not good to apply for secured credit cards repeatedly after you have been turned down for one; this will give the impression that you are desperate to get the credit. Instead, continue to make the payments when due on your current secured credit card, and wait for six months before you apply again.