Establish or Repair Credit with A Secured Credit Card

There are a few key things that you should never mess up in life. If you’re an immigrant, then you should never mess up you immigration status. When you’re young and few things are more important than your freedom, then you don’t want to do anything that can result in your driver license getting suspended or revoked. And, of course, if you were not born into a very rich family, then you really don’t want to mess up your credit rating. Thankfully, for those who make one or more credit-related mistakes, there are ways to mend a damaged credit history, like acquiring a secured credit card.

With secured credit cards, your credit line is determined by the amount of money that you use to secure the card. Generally speaking, your credit line will range from 50% to 100% of the amount of money you deposit into a special savings account setup by the secured credit card company. When you make regular, timely payments to a secured credit card account, you are working to repair or establish your credit standing.

Having a damaged credit rating is bad, but having no credit rating can be just as bad in the eyes of many creditors. That’s why moderate use of a secured credit card is a good idea for folks who’ve never had credit extended to them – like high school or college students -- because the spending activity is very likely to be reported to at least one of the three major credit bureaus (TransUnion, Experian or Equifax.)

Since a secured credit card is backed by a special savings account it can be much easier to obtain than a standard credit card. However, there are some disadvantages to secured credit cards that you should be aware of:

Disadvantages of Secured Credit Cards

• With a secured credit card, annual membership, over-the-limit and late payment fees are often higher than with standard credit cards. Therefore, if you choose to get a secured card, you should make a serious effort to make all payments on time every time and, if possible, pay off the entire balance in full at the end of each and every month.
• Credit bureaus, banks and other lenders know the difference between a secured card and a standard credit card, so if you keep a secured credit card for too long it may limit your ability to grow and mature as a consumer of credit. Bottom line: once your credit rating improves, you should payoff and cancel any secured credit card accounts you have open, then apply for a standard credit card from a reputable bank like American Express®, Citi®, Chase®, Discover® or the Bank of America®.
• You have to stay vigilant to protect yourself from secured credit card scams. There are subprime lenders out there that prey on people who have credit problems. Be sure to thoroughly research a company before signing up for a secured credit card offer.