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Secured Credit Cards: A terrific way to Rebuild Credit
Rebuilding credit after bankruptcy, or following a major financial implosion, takes time and energy. While there is merit to presenting a personal bankruptcy as a financial black hole, that you won't spend the money for credit game any more and just never re-enter the loan system after bankruptcy, for many people that is not a choice.
One way to improve credit quickly is to use secured charge cards for day to day activities, then pay off the cards entirely every month. This quickly establishes a payment history, and keep debt load and payments in check. Additionally, these cards are obtained quickly having a minimum of qualification and hassle.
Secured credit cards have to be distinguished from prepaid cards. Prepaid cards are cards that are loaded with money, then carried and used as a conventional charge card until the money expires. When that occurs, the card needs to be recharged, like a battery. These cards are issued within the name brands, such as Visa and MasterCard, and there's no method to tell a prepaid card from a regular charge card with no trained eye. The issue with prepaid cards is the fact that their use and payments aren't reported to credit agencies.
For individuals in black hole mode buying on the internet, this is great. For individuals trying to rebuild their credit, something better can be used.
Enter secured cards. With secured cards, cash is deposited right into a savings account and credit is drawn against that deposit. The credit card use is secured from the deposit amount. Based upon the type of card, the card may be either fully secured ($ 1 for dollar advance from the deposit) a treadmill involving some type of leverage (you deposit X and the bank agrees to provide you with X+ around the card). Should you default or stop making payments, the financial institution has the right to seize your deposit to satisfy the credit card balance. Observe that (1) the credit card issuer doesn't withdraw the cash from 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 are different to their benefit rates and terms. This really is one area where it pays to do some research and homework. The eye rates vary from 0% to 23.99%. Generally, the low the eye rate, the higher the annual fee. In addition, the secured card issuer may also charge a use or maintenance fee. Normally, most of the card issuers charge around 17% for the utilisation of the cards. To offset this, a few of the issuers provide interest (at or near market rates) around 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 conscious that extra fees may be required in addition to the security deposit, for instance to repay annual fees or maintenance fees.
Finally, be aware that using a card issued, even though there is enough money for that security deposit, isn't automatic. Each bank has different terms and restrictions. Again, it pays to shop around and read the small print.
