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Secured Credit Cards: A terrific way to Rebuild Credit



Rebuilding credit after bankruptcy, or after a major financial implosion, needs time to work and effort. While there is merit to using 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 is not a choice.

One method to improve credit quickly is by using secured charge cards for daily activities, then repay them in full each month. This quickly establishes a payment history, while keeping debt load and payments under control. In addition, these cards are obtained quickly with a minimum of qualification and hassle.

Secured charge 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 until the money expires. When that happens, the credit card must be recharged, just like a battery. Prepaid credit cards are issued within the big brands, for example Visa and MasterCard, and there's no way to tell a prepaid credit card from the regular charge card without a trained eye. The issue with prepaid cards is that their use and payments aren't reported to credit bureaus.

For people in black hole mode buying on the internet, this really is great. For individuals attempting to rebuild their credit, something better can be used.

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Enter secured cards. With secured cards, money is deposited right into a savings account and credit is drawn against that deposit. The credit 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 against the deposit) or one involving some form of leverage (you deposit X and the bank agrees to provide you with X+ around the card). Should you default or stop making payments, the financial institution has got the right to seize your deposit to satisfy the 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 get the security deposit back as the charge card is open.

The secured cards are different in their interest rates and terms. This is one area where it pays to do some research and homework. The eye rates change from 0% to 23.99%. Generally, the low the interest rate, the higher the annual fee. In addition, the secured card provider may also charge a use or maintenance fee. Normally, most of the card providers charge around 17% for the use of the cards. To offset this, a few of the issuers do offer interest (at or near market rates) on the security deposit.

The amount of the safety deposit varies too; it normally starts within the $200 to $500 dollar range and may work upward from there. Also be aware that extra fees may be required as well as the security deposit, for instance to pay off annual fees or maintenance fees.

Finally, be aware that having a card issued, even though there is enough money for the security deposit, is not automatic. Each bank has different terms and restrictions. Again, it pays to look around and read the small print.