Consumers who are looking to boost a very low credit score after debt settlement may want to consider the benefits of applying for a secured credit card account. Secured credit cards are typically easier to get than traditional unsecured cvv shop but there are some guidelines for selection and use. Not all secured credit cards offer the same benefits and if you are trying to strengthen your credit score, it is important to make the right financial decisions for your spending habits and your lifestyle.
Understanding Secured Credit Cards
Secured cards differ from traditional cards in that consumers are required to make an initial cash deposit into an account with the card provider. That deposit amount varies by provider but will become the credit limit for the cardholder. When purchases are made, account holders will receive a statement in the mail similar to traditional statements. The balance should be paid in full within each billing cycle to ensure you have full spending power.
Choosing the Right Card
There are several things you should look for in a new secured credit card to make it advantageous to your current financial situation and future credit goals. These considerations include:
Credit Reporting
A very important term of a secured credit card for the cardholder trying to improve a weak credit history is to ascertain whether or not the card provider will report account activity back to the consumer credit reporting bureaus. Secured cards from providers who do not report account data to these agencies are not beneficial to your credit improvement goals. If there is not evidence of the provider reporting credit data to consumer credit bureaus, contact the company directly to inquire before selecting a card.
APR Terms
Since secured credit cards are often offered to those who may be a credit risk to card providers or those who have a limited credit history, the annual percentage rate on this type of card will generally be higher than APRs on traditional credit cards for consumers with good credit ratings.
Fees and Penalties
Again, secured cards are often used by those not yet proven to be creditworthy to traditional lenders. As a result, many secured card providers tack on fees for multiple services including monthly account maintenance. Secured cards may also have stiffer penalties for late payments or for overextending your credit card’s spending limits. These fees and penalties will be outlined in the fine print of the card agreement so be sure to read it thoroughly and carefully.
Deposit Requirements
While many secured credit card providers will require between $300 and $500 in upfront deposits, some providers may insist on more. Find a card that has a deposit requirement that is reasonable for your personal budget but will also give you some spending power after monthly account fees have been deducted.
Using a Secured Card
Secured credit card use is the same as using a traditional credit card. You should be careful to never exceed your limits and that you have the financial capabilities to repay what you have spent. Even though money was deposited into the account beforehand, you still have an obligation to pay back what you have charged on a secured card. Additionally, you should make a point to pay the bill on time and in full each and every month if you expect it to boost your credit rating.
Using your card regularly for specific purchases like gas and groceries can allow you to better track your spending and stay in control of your personal budget at all time while on the road to a better credit score. After using a secured card for several months or for as long as a year with good management of your account, you may improve your credit history enough to qualify for a traditional card with a good interest rate.
One particularly valuable tool that fits both these scenarios is the Secured Credit Card. A secured credit card can provide the borrower with a line of credit similar to a regular card when their circumstances prevent them from obtaining a regular type credit card. These cards are also very effective in beginning to rebuild your credit and move to a place where you can be approved for a higher limit card or another type of loan.
How a secured credit cards functions is fairly simple, and has some similarities to a secured loan. To obtain one, the borrower must make a cash deposit into an account associated with the card. The amount deposited becomes the credit limit of the card, as well as playing the role of collateral. This secures the card and provides the lender or credit company with extra security. For example, if the borrower chose to secure the card with a deposit of $700, the card would then have a limit of that amount. Once that occurs, the secured credit card functions much like a regular credit card. The user can make purchased with the card and then proceed to make their monthly payments.
The benefits of a secured version card are clear. First of all, if you are unable to obtain a regular version because of bad credit, this enables you to still have a card, which is virtually a necessity in this day and age. The credit company is backed by the security deposit so they know they will not be left hanging by unpaid bills.
The second useful benefit with these cards is one you should take into consideration if you are looking to re-establish a strong credit rating. A secured credit card will enable you to have access to a line of credit that you might not otherwise have. You can then begin to make purchases and make on-time payments which is a very effective way to rebuild your rating. These cards are typically available for a deposit/credit limit of anywhere between $300 and $10,000, so there is a nice range that should meet the needs of most borrowers. Once you have made timely payments for a period of time, your credit score will improve, and you will be able to get a standard credit card or other forms of financing.
Finding financial companies that offer these cards should not be too difficult. Although not every bank or lending agency will make them available, the majority of them will. Your local bank may be the best place to start your search, particularly if you have a long term relationship with them or have done business with them previously. There are also many agencies that provide online tools and resources that enable you to apply for these types of programs. Many internet locations dealing with poor credit or lending will have these available, or a simple online search will turn up some options.
