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What will a secured credit card do for me?It would be nice if you could make it through life without ever having to use a credit card. The fact is that many businesses require credit cards, even if you plan to use cash for the purchase. Hotels, car rentals, and airlines are just a few of the places that credit cards are required. If you’ve never had credit or have a poor credit history, it might be difficult to get a regular credit card. In these situations, a secured credit card might be the only way to improve your credit standing. Secured credit cards are viable options, but before you get one, there are some questions you should have answered. What are the costs?
Like many regular credit cards, secured credit cards have
costs. Some of the most common costs include application
fees, processing fees, and annual fees. Find out the fees
for the secured credit card before applying. Stay away from
cards with high fees that use most of your security
deposit.
How much is the deposit?
Secured credit cards are “secured” with a deposit that's
held in an account and used when you default on your
payments. Many secured credit cards have minimum and
maximum deposit limits. Some secured cards place deposits
in an interest-bearing account. Find out if your deposit
will earn interest and if so, how much.
In what situations is your deposit used?
Some creditors only use the deposit in cases of severe
delinquency, e.g. 5-6 months past due. Others use it for a
single late payment. Knowing the situations that the
creditor will draw from your deposit can help you be more
disciplined, especially if you’re concerned about getting
your full deposit back.
Are there eligibility requirements?
Income and age restrictions might apply to some secured
credit cards. Even though you’re willing to put down a
deposit for a credit limit, card companies still have
requirements in place. Many secured credit card lenders
require borrowers to have a checking or savings account
with their bank before extending secured credit.
What will your credit limit be?
Your credit limit isn’t always
the exact amount as your deposit. It can be some percentage
of your deposit, making your credit limit less than the
deposit. Ideally, your credit limit is an amount equal to
or greater than your deposit.
What is the APR?
The APR, or annual percentage
rate, is the interest rate applied to balances that you
carry beyond the grace period. The
higher the interest rate, the higher your finance charge
will be when you carry a balance.
Are timely payments reported to credit bureaus?
If you want the credit card to help
establish or re-establish credit, your payments must be
reported to the major credit bureaus. Secured credit cards
that don’t report to bureaus won’t help your credit
rating. Make sure the card isn’t reported in a way
that reveals it as being a secured card to prevent bias
from future lenders.
Can the card be converted to an unsecured credit card?
The best secured credit cards allow you to convert to an
unsecured after a period of timely payments. Unsecured
cards often have lower fees (or no fees at all), a lower
interest rate, and fewer restrictions.
If you’ve run into financial difficulty that resulted in damaged credit, you might find it hard to obtain new credit. Past credit mistakes can be nearly impossible to move past, especially when new creditors and lenders are unwilling to give you a second chance. What do you do when you need to re-establish your credit, but can’t get a credit card?
You get a secured credit card. What is a secured credit card?A secured credit card operates just like a regular credit card. The major difference is that you, the cardholder, are required to make a deposit against the credit limit on the account. This creditor uses the deposit as security in case you default on credit card payments. The credit limit on a secured credit card is usually 50% to 100% of the deposit you make. For example, if you make a $500 deposit for a secured card, your credit limit will be between $250 and $500. Secured credit cards usually have fees that regular credit cards do not (read Common Credit Card Fees). These fees includes application fees, processing fees, and annual fees. Beware of cards with high fees because they can greatly reduce your deposit and ultimately, your credit limit. Take advantage of secured creditMost damaged credit is a result of poor payment habits. When you can’t get credit the traditional way, secured credit can help you demonstrate your improved payment habits. You can’t prove a renewed ability to make timely payments until you have a new credit card. Before you apply for a secured credit card, make sure the creditor reports to all three major credit bureaus. If not, the card won’t benefit you in terms of re-establishing your credit because future creditors won’t have a way of seeing the payment history. It won't be included on your credit report or in your credit score. After you’ve been approved, remember that your purpose for the card is to build a positive credit history. That said, don’t use the card to incur debt. Instead, use your secured credit card to make small purchases that you can pay in full each month. If you can’t afford to pay for a purchase, don’t charge it. Transitioning to unsecured creditMany credit card companies will allow you to convert to an unsecured credit card after one or two years of timely payments. Even if you can’t convert your secured credit card, you can apply for an unsecured credit card with another card company. Don’t repeatedly apply for credit cards after you’ve had an application denied. This makes you look desperate for credit. Instead, continue making timely payments on your secured card and apply again within six months.
Here are some articles on how to determine which cards to pay off first and other debit reduction resources and ideas. |
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How will your change in credit card interest rates impact you?
If you happen to miss a payment on your credit card or any other loan it may impact your credit card interest rate. If you owe about $1,000 at 11% interest it will take you 73 months (6 years) to pay it off and $320 in interest. but when your credit card company increases your interest rate due to a late payment, even if the late payment is not that credit card, they can increase your rate to a penalty rate. Let's say that rate is 19.9% (some states allow up to 29.9%). It will now take you 100 months to pay off your balance (8.3 years) and $860 in interest.
It pays to pay your minimum payments on time.
.
FREE Credit Scores for Prospective Borrowers or NOT.
September 5, 2011
It has been just over a month since the new Federal credit score disclosure law went into effect. Lending institutions have already found loopholes to keep from disclosing your credit score when you are denied credit, loan, or if you received less desirable terms because of your score. According to SmartMoney.com there are time you may not get a credit score. These are usually when banks use their own in-house credit scoring system. There are other ways to get your credit score that will not impact your credit rating by going to MyFICO.com Click here for more information.
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