Bad credit can ruin your financial future. You can get your application reject or receive ridiculously high interest rate. Your auto insurance rate may get jack up. Even getting a credit card seems impossible.
So, how can you get rebuild your credit when you can’t even get credit?
The solution is getting a secured credit card. So, what exactly is a secured credit card?
Lets look at the two main types of credit cards available on the market. One is secured credit card and the other is unsecured credit card.
Unsecured credit cards are the most popular and valuable. They are popular because there is no need for any type of collateral. They are valuable because you can build up your credit history when used responsibly.
But this type of card is like a double edge sword. When used irresponsibly, it can get you into serious financial debt and ruin your credit history.
On the other hand, a secured credit card required a collateral, usually in the form of a saving or cash deposit account. When you apply for such a card, you will be required to open an account at the bank that issue the secured credit card. The amount of cash you deposit in tot the account will serve as the collateral and you will receive a credit limit equal to the amount your deposited.
For example, you deposit $1000 into the bank account and the bank will issued you a secured credit card with a credit limit of $1000. You can increase your limit by depositing more cash but there is usually a upper limit and it differs from bank to bank. Most of the time, this amount of cash cannot be withdrawn unless you cancel the card.
A secured credit works very much like a normal unsecured credit card. You can pay for dinner at your favorite restaurant, buy merchandise on the Internet and many other things that a regular credit card can do.
But if you default on your bill payment, the bank has the right to take the money from your deposit. In addition, there are a number of fees that you need to pay up front.
One of the advantages of using a secured credit card is its ability to rebuild your credit. When applying for a secured card, make sure that the bank is reporting to the three major credit bureaus. You credit rating will rise as you continue to use your card and make repyament promptly.
Another advantage is that the deposit in your bank account is earning interest. You can withdraw the interest if you wish to do so.
If you continue to use the card responsibly and make payment on time, the bank will likely convert the card to an unsecured one after a period of time.
A secured credit card is a valuable tool to rebuilding your credit. However, it is imperative that you start cultivating good money habit such as regular saving and making bill payments on time. Good money habits will ensure you get to keep your good credit that you built as well as help you avoid falling into the debt hole.