Secured Credit Cards are a Sensible Step to Rebuilding Your Credit
Secured credit cards are not of much use to you if you already have a solid credit score. These cards require a cash deposit that will represent your budget for that card. For example, if you put $400 in the account, you would have a $400 line of credit. If you put $750 in the account, then $750 would be your credit limit. Secured credit cards are only given to individuals with no credit history, or to people who have bad credit and can't get any other card to re-build their credit.
Secured credit cards can be a great way to rebuild your credit, but there are several things you need to understand right off the bat:
- These cards will have higher interest rates
- These cards will have annual fees
- Most cards will limit you to $300-500 starting out
- These cards are not a long-term solution to your credit woes
Since these are credit cards designed to help someone with a bad credit history (or in rare cases, none at all) get into the game, these are not going to be the best deals. However when there's nothing else available a good secured credit card can help to rebuild your credit score back to a respectable level.
The problem with secured credit cards is that there are some good, a lot bad, and some that are such rip offs they should be criminal. Reading the fine print is critical with these cards. To make sure you get the best deal possible, ask around to find the best rates. There are also several questions that you want to ask any bank you're looking to get a credit card from. These questions include, but are not limited to:
- Do you report to all 3 major credit bureaus?
- Do you report this as a secured card (you want a card that doesn't report to the credit bureau as a "secured card" as this can hurt your credit score even more)
- Is my "collateral deposit" put into a savings account or CD?
- Will the bank add to my credit after a year of on time payments?
That last question about secured credit cards is less important than the others, but could be a nice bonus that some banks offer. The most important question is making sure that your credit card payments are reported to all three credit bureaus. The whole point of getting a secured credit card is to slowly rebuild your credit profile. If your payments are not being made to the credit bureaus, then you are losing the main point of having a secured credit card.
Another detail that is extremely important before choosing a secured credit card is to make sure that not only is the card reported to the credit bureaus, but also that it is reported simply as a credit card and NOT as a "Secured Credit Card."
The reason for this is that many credit reports will actually dock you points for having a "secured credit card" because it is a sign of bad credit history. Even if your card is a secured credit card, you want it simply reported as a credit card. The First Premier credit card reports to the three monthly credit bureaus without noting that the card is secured so you are able to rebuild your credit score using the most effective techniques.