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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 energy. Nevertheless there is merit to using a personal bankruptcy as a financial black hole, in which you refuse to pay the credit game any longer and simply never re-enter the loan system after bankruptcy, for most people that isn't a choice.
One method to improve credit quickly is by using secured credit cards for daily activities, then repay the cards entirely every month. This quickly establishes a payment history, while keeping debt load and payments in check. Additionally, these cards are obtained quickly having 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 as a conventional charge card until the money runs out. When that occurs, the credit card must be recharged, like a battery. Prepaid credit cards are issued in the big brands, for example Visa and MasterCard, and there is no way to tell a prepaid credit card from the regular charge card with no trained eye. The issue with prepaid cards is that their use and payments are not reported to credit agencies.
For people in black hole mode buying on the internet, this is great. For people trying to rebuild their credit, something better must be used.
Enter secured cards. With secured cards, cash is deposited into a savings account and credit is drawn against that deposit. The card use is secured against the deposit amount. Depending upon the kind of card, the credit card may be either fully secured ($ 1 for dollar advance against the deposit) or one involving some form of leverage (you deposit X and also the bank agrees to provide you with X+ on the card). If you default or stop paying, the financial institution has got the right to seize your deposit to satisfy the credit card balance. Note that (1) the credit card issuer does not withdraw the cash against the security balance if you don't default and (2) you don't have access or obtain the security deposit back as the credit card is open.
The secured cards will vary in their interest rates and terms. This really is an area where its smart to complete some research and homework. The eye rates change from 0% to 23.99%. Generally, the low the interest rate, the larger the annual fee. In addition, the secured card provider could also charge a use or maintenance fee. Normally, the majority of the card providers charge around 17% for the use of the cards. To offset this, some 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 in the $200 to $500 dollar range and can work upward after that. Also be aware that extra fees are usually necesary as well as the security deposit, for example to pay off annual fees or maintenance fees.
Finally, remember that using a card issued, despite the fact that there's enough money for that security deposit, is not automatic. Each bank has different terms and restrictions. Again, it pays to look around and browse the small print.
