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Secured Credit Cards: A terrific way to Rebuild Credit
Rebuilding credit after bankruptcy, or following a major financial implosion, needs time to work and effort. Nevertheless there is merit to presenting a personal bankruptcy like a financial black hole, in which you refuse to spend the money for credit game any more and simply 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 pay off them in full every month. This quickly establishes a payment history, while keeping debt load and payments under control. Additionally, prepaid credit cards are obtained quickly with a minimum of qualification and hassle.
Secured credit cards have to be distinguished from prepaid cards. Prepaid credit cards are cards which are packed with money, then carried and used as a conventional charge card until the money expires. When that happens, the card needs to be recharged, just like a battery. These cards are issued within the big brands, such as Visa and MasterCard, and there's no way to tell a prepaid credit card from a regular credit card with no trained eye. The major problem with prepaid credit cards is the fact that their use and payments aren't reported to credit agencies.
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 checking account and credit is drawn against that deposit. The credit card use is secured against the deposit amount. Based upon the kind of card, the credit card may be either fully secured (a dollar for dollar advance from the deposit) or one involving some form of leverage (you deposit X and also the bank agrees to provide you with X+ on the card). Should you default or stop paying, the bank has the to seize your deposit to satisfy the credit card balance. Observe that (1) the credit card issuer doesn't withdraw the money against the security balance if you don't default and (2) you don't have access or get the security deposit back while the charge card is open.
The secured cards will vary to their benefit rates and terms. This is one area where it pays to complete some investigation and homework. The eye rates change from 0% to 23.99%. Generally, the lower the interest rate, the larger the annual fee. Additionally, the secured card provider could also charge a use or maintenance fee. Normally, most of the card issuers charge around 17% for the use of the cards. To offset this, a few of the issuers provide interest (at or near market rates) around the security deposit.
The quantity of the safety deposit varies as well; it normally starts in the $200 to $500 dollar range and may work upward after that. Be also conscious that extra fees are usually necesary as well as the security deposit, for instance to pay off annual fees or maintenance fees.
Finally, be aware that having a card issued, despite the fact that there's enough money for that security deposit, isn't automatic. Each bank has different terms and restrictions. Again, its smart to shop around and read the fine print.
