Repair Or Establish Your Credit With A Secured Credit Card

A secured credit card is a great way to establish credit history or rebuild credit history if you need to.  Even if  you have a bad or non-existent credit rating, you are guaranteed to be accepted, and within a year you can establish or begin to noticeably repair your credit.  They are not normally the best deals in terms of interest rates, and overall financial effectiveness, but they are a viable alternative  for people that can’t get a regular credit card.

When I applied for my first credit card, I was rejected two or three times.  I wasn’t really sure why at the time, but the banks alluded to a poor bank credit rating. This mystified me, because as far as I understood I had no credit history whatsoever.  I was in my early 20’s and finishing up college, and I had never bounced a check or paid a bill late in my life.  Well, not very late at least. 

Catch 22
The banks I applied to kept offering me secured credit cards instead, but I resisted them at first.  I attempted to get a credit report, but it came back blank, confirming my suspicion that I had no credit history.  So, here was my predicament.  I had no credit, but I couldn’t establish any credit because I couldn’t get a credit card, because I had not credit.  How is that for a catch-22? 
 
Deposits
Secured credit cards all work with the same idea.  You give the bank or credit company a deposit, and they give you a credit line which is usually equal to the deposit you gave.  The bank is therefore at zero risk because if you fault on your payments they just take it out of your deposit.  You, on the other hand, have to give up a chunk of your funds to sit idle with the bank, collecting no interest, and you have to pay a fairly high interest on your balance. 

Transition Period
After a period of time (usually about a year) you get your deposit back and are then given a normal, ‘unsecured’ credit line, assuming you were good with your payments.  If you had especially horrible credit before hand, or were late on some of your payments, it may take longer than a year to get your deposit back. 

Overall, secured credit cards or partially secured credit cards are a kind of last resort, as they are never really a good deal for you.  However, they are an excellent way of repairing or establishing credit. A secured Visa card or a secured Mastercard will do wonders for your personal credit rating.


tags: