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Secured Credit Cards: A Great Way to Rebuild Credit
Rebuilding credit after bankruptcy, or following a major financial implosion, takes time and energy. While there is merit to using a bankruptcy as a financial black hole, in which you refuse to spend the money for credit game any more and just never re-enter the loan system after bankruptcy, for many people that is not an option.
One way to improve credit quickly is to use secured credit cards for daily activities, then pay off them in full each month. This quickly establishes a payment history, and keep debt load and payments in check. Additionally, these cards are obtained quickly having a minimum of qualification and hassle.
Secured credit cards need to be distinguished from prepaid credit cards. Prepaid cards are cards that are packed with money, then carried and used like a conventional charge card before the money expires. When that occurs, the card needs to be recharged, just like a battery. Prepaid credit cards are issued in the big brands, such as Visa and MasterCard, and there's no method to tell a prepaid credit card from a regular charge card with no trained eye. The issue with prepaid cards is the fact that their use and payments are not reported to credit bureaus.
For individuals in black hole mode buying over the internet, this really is great. For people attempting to rebuild their credit, something better must be used.
Enter secured cards. With secured cards, money is deposited right into a savings account and credit is drawn against that deposit. The card use is secured from the deposit amount. Depending upon the type of card, the card may be either fully secured ($ 1 for dollar advance from the deposit) a treadmill involving some form of leverage (you deposit X and also the bank agrees to provide you with X+ on the card). Should you default or stop paying, the financial institution has the to seize your deposit to fulfill the credit card balance. Observe that (1) the credit card issuer doesn't withdraw the cash against the security balance unless you default and (2) you do not have access or obtain the security deposit back as the charge card is open.
The secured cards will vary to their benefit rates and terms. This is one area where its smart to complete some research and homework. The interest rates change from 0% to 23.99%. Generally, the lower the interest rate, the higher the annual fee. In addition, the secured card provider may also charge a use or maintenance fee. Normally, the majority of the card providers charge around 17% for that use of the cards. To offset this, a few of the issuers provide interest (at or near market rates) on the security deposit.
The quantity of the safety deposit varies too; it normally starts within the $200 to $500 dollar range and may work upward after that. Also be aware that extra fees are usually necesary in addition to the security deposit, for instance to pay off annual fees or maintenance fees.
Finally, be aware that using a card issued, even though there's enough money for the security deposit, isn't automatic. Each bank has different terms and restrictions. Again, it pays to look around and read the small print.
