Establishing or Repairing Your Credit: Credit Cards are Your Key
Credit cards are great tools to use to establish or reestablish damaged credit. But what if you can?t qualify for a credit card? Cash secured credit cards are a fantastic stepping stone to greater financial freedom.
There are a number of reasons why you might have difficulty qualifying for a standard credit card: divorce, bankruptcy, poor credit history, no credit history. If you find yourself in a situation where acquisition of a credit card is difficult or impossible, a cash secured credit card will give you the opportunity to build a credit history and posture yourself for standard credit.
A secured or prepaid credit card is usable in all applications where a standard credit card is accepted; the difference is that with a prepaid card the charges are backed by money that you deposit before you use the card. Banks differ in the amount of money that they require up front, but the amount is usually between $0 and $500. As you might imagine, cards that require smaller balances usually change greater fees for account maintenance than those cards that require balances up front, but they give you the opportunity to build a positive balance incrementally, spreading out the initial outlay of cash.
Even though a prepaid or secured credit card is funded by your own cash it will help immensely in building your credit because the issuing bank reports your usage and payment history to the three big credit bureaus, who really control your credit history and rating information. Secured credit cards are a guaranteed advantage – anyone can get one, and they give you the chance to show that you are willing to make your payments on time. This will have a quick and positive impact on your credit rating as long as you remember to maintain your account and make all payments on time. You also show plan so that you keep the balance owed on the card at an acceptable level, around 40% or less of the maximum allowed.
After you’ve used and maintained a secured credit card for twelve or more months, and have maintained good payment performance, your credit card vendor will give you the opportunity to convert your prepaid credit card to a standard credit card. Continue maintaining your account and you will build or rebuild a healthy credit history that you can continue to expand on with increasingly flexible credit products. In a future article I will describe how you can build on the credit that you establish with a secured Credit Card.
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