Using a Secured Credit Card to Rebuild Your Credit
Sometimes you find yourself in overwhelming debt. Maybe you have had trouble with medical bills, or maybe your credit was ruined in the recent subprime lending crash. Or perhaps you got a little carried away with the credit cards. Whatever the reason for your current low credit score, you can begin rebuilding your credit with the help of a secured credit card.
What is a secured credit card?
Most regular credit cards are unsecured. This means that you are approved for a certain amount with no real collateral to pay for the debt if you are unable to pay. A secured credit card, on the other hand, is usually backed up by something. It can be a prepaid credit card, or it can be a credit card secured by your savings account or some other asset.
With a secured credit card, your limit is based on your proven ability to pay it. And when you have a secured credit card, you can actually begin rebuilding your credit score.
How a secured credit card helps
A secured credit card can be helpful in cases where you do not have good enough credit to get an unsecured card. As you make regular and on time payments on your secured credit card, your credit rating will start to recover. Eventually, you can work your way up to better deals on interest rates, and even to getting an unsecured credit card again.
A secured credit card can also help someone with no credit build up his or her credit score.
What to look for in a secured credit card
It is important to realize that just like their unsecured counterparts, secured credit cards come with a variety of interest rates and fees. Carefully shop around. Some secured credit card companies will try to take advantage of your poor credit score by charging outrageous interest rates or by imposing stiff annual fees.
While some fees are to be expected, do not pay annual fees in excess of $50 or $60. And try to find a secured credit card that offers you a reasonable interest rate. In poor credit situations, a reasonable interest rate can be as high as 17.99%.
Also, insist that your secured credit card offers incentives for good payment behavior. Check the policies on lowering the rate, eliminating fees or even switching to unsecured as you show fiscal responsibility.
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