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Secured Charge cards: A Great Way to Rebuild Credit
Rebuilding credit after bankruptcy, or after a major financial implosion, needs time to work and effort. Nevertheless there is merit to presenting a bankruptcy as a financial black hole, in which you won't spend the money for credit game any more and just never re-enter the credit system after bankruptcy, for many people that is not a choice.
One way to improve credit quickly is by using secured charge cards for day to day activities, then repay the cards entirely each month. This quickly establishes a payment history, while keeping debt load and payments in check. In addition, these cards are obtained quickly having a minimum of qualification and hassle.
Secured credit cards need to be distinguished from prepaid cards. Prepaid cards are cards that are packed with money, then carried and used as a conventional credit card before the money runs out. When that occurs, the credit card needs to be recharged, just like a battery. These cards are issued in the name brands, for example Visa and MasterCard, and there is no method to tell a prepaid card from the regular charge card with no trained eye. The issue with prepaid cards is that their use and payments aren't reported to credit bureaus.
For people in black hole mode buying on the internet, this is great. For people attempting to rebuild their credit, something better must 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 kind of card, the credit card might be either fully secured (a dollar for dollar advance from the deposit) a treadmill involving some form of leverage (you deposit X and the bank agrees to provide you with X+ around the card). If you default or stop paying, the financial institution has the right to seize your deposit to fulfill the card balance. Note that (1) the card issuer doesn't withdraw the money from the security balance if you don't default and (2) you don't have access or get the security deposit back while the credit card is open.
The secured cards will vary to their benefit rates and terms. This really is an area where it pays to do some research and homework. The eye rates vary from 0% to 23.99%. Generally, the lower the interest rate, the higher the annual fee. Additionally, the secured card issuer could 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, some of the issuers do offer interest (at or near market rates) around the security deposit.
The quantity of the safety deposit varies too; it normally starts in the $200 to $500 dollar range and may work upward from there. Also be aware 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 having a card issued, despite the fact that there is enough money for the security deposit, isn't automatic. Each bank has different terms and restrictions. Again, it pays to shop around and browse the small print.
