Rebuilding Credit – Secured Credit Cards Are A Great Tool
At some point in the credit repair process, you are going to want to start building new credit. Providing a record of being able to be responsible with a revolving loan will improve your credit rate and open new opportunities to you.
Rebuilding Credit – How a secured card can help.
A secured credit card is a card that is backed up — secured — by a deposit. Many start with deposits of around $200 to $300. Your line of credit is equal to the amount of money that you have deposited.
These cards do not extend your spending capabilities, since you are basically borrowing money from yourself. But, they show lenders that you can be responsible with a line of credit.
Save Up Some Cash
Before you start actively looking for a secured credit card, make sure that you have a little cash in the bank. You will need this for your security deposit and also to pay any annual fee associated with the card.
Find a Card
Start by enquiring whether your bank or credit union offers a secured credit card. If they do not, or if you do not qualify for their card, begin researching online to find the best deal. Sites like BankRate keep track of offers from a number of lenders.
Consider factors like the annual fee, how the money is stored and what interest rates are offered. The annual fee is the most important factor, since some cards have extremely high rates. The interest rate is of less importance since your goal will be to pay of the card each month and never owe any interest.
Do not apply for a bunch of cards. Apply for one with a high acceptance rate and wait to hear back before you put in an application somewhere else. Too many applications at once can temporarily lower your credit score and cause your application to be declined.
Pay It Off Religiously
One you have the card, use it for one or two small items a month. For building credit, a good rule of thumb is to avoid a balance that is higher than 10% of your limit. So, on a $500 secured credit card, keep that expenditure under $50.
The best bet is to use it for a regular expense like gas or groceries. If you have trouble managing money, adding meals out or new clothes to your monthly expenses is counterproductive. By transferring an expense you will have anyway, you avoid increasing your costs.
Then, pay off what you charge in full every month. If you pay off the card within the grace period, you will not owe any interest. Many card issuers will allow you to set up automatic payments. If you have a regular and predictable source of income, automatic payments can assure that you never forget your bill.
After several months of on-time payment, you can move up to an unsecured card. From there, the benefits of good credit, from better job opportunities to a home purchase, are in your grasp.