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Rebuilding Credit with a Secured Credit Card

Using a Secured Credit Card to Rebuild Your Credit.

Anyone who is going through some financial troubles usually has to contend with damaged credit. And when your credit is damaged, you will find that most banks and other lending institutions aren't too keen to do business with you. If you were previously irresponsible with your credit, you're bound to suffer the consequences, such as finding it difficult to be approved for a new loan or any form of credit. You need to get your credit reestablished, and since you cannot get just about any credit card, the best thing you can do is apply for a secured credit card.

Secured Credit Card - What Is It?

A secured credit card works like an ordinary credit card that you can use to make charge purchases. The main difference between the two types of cards lies on the deposit required from the secured credit card account holder. This deposit will be offset by the creditor against any outstanding balance in case the cardholder defaults on the payments. A secured credit card's credit limit is usually half or equivalent to the deposit made. For example, the credit limit allowed for a $1,000 deposit can be $500 or $1,000, or any amount in between. Secured credit cards also have additional fees charged, such as application, processing, and annual fees. Be wary of the cards charging high fees because those fees will increase your total costs and reduce your deposit, and that will affect your credit limit.

Why Use a Secured Credit Card?

Damaged credit is a natural consequence of delinquencies or late payments of your monthly bills. To repair your credit, you will need a way to show you now have the capability to repay your credit and you have made a practice of paying your obligations on time. For this purpose, your best bet is a secured credit card inasmuch as you could hardly find a willing creditor if you follow the regular route.

When you're choosing which secured credit card to apply for, go for the issuer that submits its credit transactions to all three major credit reporting agencies (Experian, TransUnion, and Equifax). If not, the issuer's secured credit card is not going to be helpful at all in your efforts to rebuild your credit. Do remember that your primary interest in getting this type of card is to create a new credit history, one that is going to show you in a much better light. When your positive payment history is reflected on your new credit report, future creditors are going to see the changes in your payment record and view your application more favorably.

When you are approved for a secured credit card, remember to not use it to accumulate more debt that could only aggravate your damaged credit. Use the secured card to purchase small items you can easily pay off in full on due dates instead. Remember your new card's purpose: to prove you can promptly pay your bills. Never use it to buy anything you won't be able to pay in a month's time.

If you can demonstrate your ability to manage your credit better this time around, the card company may eventually consider your request for an unsecured credit card. Credit card companies usually approve the conversion from secured to unsecured after a period of two years and if there are no late payments on record. Even if the same card company does not grant you an unsecured card, you can apply with another card issuer provided you have built a good payment record.

If your application for unsecured credit is denied, however, do not try to apply with many others as more inquiries within the same period can gravely affect your credit score. Your best recourse is to continue paying your bills on or before due date and try applying again after six months.