Using Secured Credit Cards to Rebuild Credit

When a person has bad credit and wants to rebuild it, they will find that obtaining an unsecured credit card is nearly impossible. Fortunately, secured credit cards are designed for such people. Such a card requires a security deposit, and the amount of the deposit usually translates into the credit line on the card. Using a secured card to rebuild credit is pretty straightforward and simple to do.

Finding a Card

Most banks and other financial institutions offer secured cards on top of their normal credit card options. All cards that are secured will require some sort of deposit, which typically ranges from $100 to $10,000. Of course, the trick with these cards is that a person can only obtain a line of credit equal to or less than the amount that they put down in the beginning. All national banks offer these cards while most local banks and credit unions will too.

How it Works

Secured credit cards work just like an unsecured card. At the end of the month, the cardholder will get billed for any purchases they have made, including interest. All of this is reported to the three credit bureaus as if it were a regular credit card, which allows a person to rebuild their credit history and credit scores. So then, these cards are no different from a typical credit card save for the fact that the bank holds the security deposit so that it can’t lose thousands of dollars if a person misuses the secured credit card.

Downsides

There are very few downsides to these types of credit cards, but it is just as easy to abuse them as it is to do so with regular cards. For instance, a person could hurt their credit if they don’t pay off this card, and many people ruin their opportunity to rebuild credit. Also, a cardholder can easily forfeit their original deposit if they don’t pay their bill each month. These cards might come in handy, but they are easy to abuse like any other line of credit in different ways.

Rebuilding Credit

The path to credit rebuilding is a long one because the history and scores won’t change overnight. In fact, it can take months or years to fix everything, depending upon how bad a person’s credit is to start out with. Most people can see improvements within the first few months of using a secured card. Unfortunately, those who mismanaged their finances astronomically will find that it takes many years to repair things. Either way, the best way to build up credit again is to pay bills on time and keep a low balance on the credit card.

Are they worth it?

For some people, secured credit cards are the only option they have, and these cards are great for individuals with really poor credit. Obtaining a card is pretty easy, assuming the person has the security deposit available. These cards come with more conditions, but a person may not have the chance to obtain an unsecured card.

 

Richard Towler has been helping consumers since early 2007 by running a network of consumer finance comparison websites in the USA and Australia. In a market where consumers are overwhelmed with many offers all claiming to be the best the network of sites including Secured Credit Cards 4U which aims to make financial products such as credit cards more transparent by comparing the key features side by side. In addition to secured cards the site compares products such as prepaid credit cards and credit cards for bad credit.


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