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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 effort. While there is merit to presenting a personal bankruptcy like a financial black hole, in which you won't pay the credit game any more and simply never re-enter the loan system after bankruptcy, for most people that isn't a choice.
One method to improve credit quickly is by using secured credit cards for daily activities, then pay off the cards in full every month. This quickly establishes a payment history, and keep debt load and payments in check. In addition, these cards are obtained quickly having a minimum of qualification and hassle.
Secured charge cards have to be distinguished from prepaid credit cards. Prepaid credit cards are cards which are packed with money, then carried and used as a conventional credit card before the money expires. When that happens, the credit card must be recharged, just like a battery. These cards are issued within the big brands, such as Visa and MasterCard, and there's no way to tell a prepaid card from a regular charge card without a trained eye. The issue with prepaid cards is that their use and payments are not reported to credit agencies.
For individuals in black hole mode buying on the internet, this really is great. For individuals attempting to rebuild their credit, something better must be used.
Enter secured cards. With secured cards, cash is deposited right into a checking account and credit is drawn against that deposit. The credit card me is secured from the deposit amount. Depending upon the type of card, the card might be either fully secured (a dollar for dollar advance from the deposit) a treadmill involving some form of leverage (you deposit X and also the bank agrees to give you X+ around the card). If you default or stop making payments, the financial institution has got the right to seize your deposit to fulfill the card balance. Observe that (1) the card issuer does not withdraw the money from the security balance unless you default and (2) you don't have access or obtain the security deposit back while the credit card is open.
The secured cards are different in their interest rates and terms. This really is an area where its smart to do some investigation 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 could also charge a use or maintenance fee. Normally, most of the card issuers charge around 17% for the utilisation of the cards. To offset this, some of the issuers do offer interest (at or near market rates) on the security deposit.
The quantity of the security deposit varies too; it normally starts in the $200 to $500 dollar range and may work upward after that. Be also aware that extra fees are usually necesary as well as the security deposit, for example to pay off annual fees or maintenance fees.
Finally, be aware that having a card issued, despite the fact that there is enough money for that security deposit, isn't automatic. Each bank has different terms and restrictions. Again, its smart to look around and browse the small print.
