Rebuilding Your
Credit with a Secured Credit Card
by Jeanette
Fisher
If you've
suffered some credit setbacks or have recently gone
through the bankruptcy process, you can still begin
rebuilding your credit almost immediately through
the use of a secured credit card. Secured cards are
a great way to begin showing future creditors your
renewed ability to make payments on time, if you use
them correctly.
First, let's
define the term. A secured credit card looks and
acts just like a regular card, except for the fact
that you'll have to put a certain amount of money
into an account (generally $300 to $500) to act as
collateral against the charges you'll be putting on
the card. The credit card company will issue you a
credit limit that matches what you have in your
account, and from then on, you're free to use the
card exactly like a standard card.
This can come in
very handy if you travel, because most car rental
companies will want to see a card, even if you're
paying cash for your rental. There are also many
other situations in which people will ask to see a
driver’s license and a credit card as ID. So even if
you don't plan to use the card, it's often helpful
to have it.
However, you'll
want to use it if you're trying to rebuild your
credit, but you'll want to go slow, to make sure you
can always make the payments in a timely fashion.
Your goal isn't just to get a credit card; it's to
rebuild your credit as quickly as possible, using
your secured card as a stepping stone to other
credit in the future.
The best way to
use your secured credit card is to make a few small
purchases each month with the total amount of your
purchases being small enough that you can easily pay
off the entire balance on the card each time your
statement arrives. It's important to pay off the
balance in full, because secured credit cards
typically have rather high interest rates, but
there's no interest at all if you pay your bill in
full every month.
After you've made
your payments in a timely way for a year or so,
you'll often be rewarded by the issuing credit card
company. Your first reward will generally be an
increase of your credit limit to an amount above
what you've been required to keep your collateral
account. The second reward will typically come in
the form of an offer to apply for an unsecured card.
The key thing to
remember is that your ultimate goal is to prove to a
credit card company that you have renewed your
ability to make payments in a timely fashion over an
extended period of time. That means that it's
critical not to accumulate an amount of charges that
begin to become a burden. Your mission is to regain
entry into the mainstream credit world, and a
secured credit card can be a great way to do that,
if you use it responsibly.
Copyright © 2006 Jeanette J.
Fisher
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Jeanette
Fisher teaches how to get out from under credit card debt,
how to use credit to make money, and six ways to
build strong credit to finance your first home and
multiple investment properties. For a free credit
advice and free ebook "Credit Tips for Mortgage
Financing," see
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