Building Good Credit with Secured Credit Cards

One of the methods of working your way back to a good credit score and report is by using a secured credit card.  Not only can you use these for purchases just like a normal card, but doing so will help you develop the discipline of making sure you have the money to cover your purchases.  Here are the details on these cards.

What are secured credit cards?  A secured credit card is a type of credit card where you deposit into an account an amount of money that becomes your credit limit.  Your use of the credit card is identical to any other credit card in that it is accepted as any other would be.  Also, you make regular monthly payments to pay off any money that you spend using the card.
The credit card company has no liability because the money which you deposited with them is there to secure the card in case you cannot pay it off.  You will even find that most of these credit card companies will allow your money to earn interest while it is in the account.  A nice perk, no doubt.

This is a second chance way of building your credit.  And, in fact the money on account is there as a safety net for you as well.  When you open up a secured credit card account, it opens an entry on your credit report as well.  Then, as you make your regular monthly payments, your credit history and score will reflect these positive actions.

Additionally, you are given the opportunity to practice good credit habits by paying your bill on time every month, and managing your credit so that you do not allow it to run ahead of your income.  In fact, it is too bad that everyone is not required to start out with a secured credit card before moving on to the others.  It might help the delinquency rate tremendously.

Be on the Look Out.  You still have to make regular monthly payments on your account in order to keep it in good standing.  Failure to do so will cause poor marks on your credit report and lower your FICO score.  You also need to make sure that you do not go over your limit.  But this is also a good thing because it forces you to pay more attention to your card activity.  Watching your account online can help in this area.

Good Credit Happens.  Look at this as a short-term fix for a long term issue.  Given a satisfactory time of about a year, you can apply for a regular credit card.  And if anything was learned from the experience you will be much more aware of and watchful over your account and how you handle it.  Be sure to monitor your credit report during this time as well in order to see how your credit is affected and how your score can rise by disciplining yourself to be a responsible credit user.
One other positive benefit from secured credit cards is that because there are low limits based on the deposited amount in the account, the interest rates play a smaller role on these types of cards.  You will not see large amounts of interest charges accrue since the balances on these cards are generally lower.

Finally, you will find that most of these accounts are available free of charge for the opening, so be wary of those card companies who try to extract a fee just for opening the account in addition to the amount that will be kept on deposit.

If you use the advice above, you credit will soar to new heights sooner than you think.

Related Posts:

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This entry was posted on Thursday, March 26th, 2009 at 8:58 am and is filed under Debt & Consolidation, Tips & Advice. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.