How to rebuild your credit through secured credit cards

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How to rebuild your credit through secured credit cards

Is bad credit keeping you from accessing new credit? It's a vicious cycle, but for those of you who want to rebuild a credit rating that needs work or are building your credit history for the first time, getting a secured card might be your best (or only) option. We discuss when they could be useful and share some suggestions from our partners.

Is a secured credit card right for me?

The biggest difference between a secured and an unsecured credit card is that secured cards typically require a security deposit from the cardholder, which functions as cash collateral against you defaulting on your payments.

Secured credit cards are especially useful for consumers with credit that needs work or little to no credit history who are typically declined for unsecured credit cards. A secured card can almost guarantee approval by the lending institution because, in effect, you are the one taking on the financial risk through your security deposit.

Think of a secured card as your credit line "training wheels" that allow you the benefits of owning a credit card while giving you the opportunity to build a history of responsible credit use with on-time payments. The small credit limits and security deposit requirements are there to protect you from getting yourself into the poor payment history that may have plagued you in the past.

Secured card credit limits are often set at the amount of the security deposit or some percentage of it so that you cannot charge more than your security deposit can cover. Depending on your specific secured card, adding more to your security deposit enables you to access a higher credit limit, or if your payments are on-time and consistent, the credit card company may reward you by increasing your credit line without requiring additional deposits. Many secured cards increase the credit limit of your secured card after 6-12 months of responsible use and on-time payments.

If you can't break yourself from old habits and your monthly payments for credit charges are late or insufficient, the bank or card company will dip into your security deposit to foot the bill. Only good news here is that because of the small credit limit, you probably cannot get into significant debt.

Putting the secured card to work for you

A secured credit card is a great vehicle to build or rebuild your credit history, but still requires regular responsible use and diligence to earn good credit standing. Some guidelines to optimize your credit with secured credit cards:

  • Make payments on time - Always, always pay on time to put your best credit foot forward. Your card is intended to build positive credit history so don't bite off more than you can chew, don't charge purchases you can't afford to pay, and to show your serious commitment to being credit-worthy, never miss a payment.
  • Use your card, responsibly - To build up a credit history, you're going to need to use your secured credit card. Using it once a month for something simple like a tank of gas or a small grocery run is a great way to demonstrate responsible use while building payment history. Most importantly, pay on time when the bill comes - it's one of the largest influences on your credit score.

Secured credit cards can be a very powerful tool to start improving your credit today, but there are drawbacks. Secured cards come with fees of all kinds including annual membership fees, application fees, processing fees, deposit fees, higher interest rates fees, late payment fees, over limit fees, and cash advance fees.

The path to greater options

A secured credit card can be a significant stepping stone in managing your credit health. There are many secured cards out there, so shop wisely, read the fine print and - as always - use the card responsibly and pay on time.

Good credit is somewhere in your future, but improvements to your credit score don't happen overnight. You'll need to show months and possibly a couple years of solid credit history before you'll be ready to graduate to an unsecured credit card. But have hope; there is light at the end of the tunnel.

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All Comments

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Is there a way to find out what items are on my report on kc?

What is KC?

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CK Moderator

Reply by
mslittlelala

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lol they meant ck

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good article and helpful

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Helpful to 1 out of 1 people

I did this after a ch 7 in the early 90's. It worked very well and before long I had all the credit I ever needed and have excellent credit today.

Reply by
jcw777jcw

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Ya! u go dog! :-)

1 Contribution
0 People Helped

I checked with my local credit union they have a secured card that cost nothing. Checked with some the big banks have accounts with and some have them with low annual fees meaning about the cost of a pizza. Plus to this you can transfer money from one account to other when bill due.

1 Contribution
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what's the best card to get if you want to rebuild your credit after filing banctrupsy?

You will want to apply for a secured credit card.Public Savings Bank has no credit requirements and has low fees.

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CK Moderator

Top Contributor

Reply by
JohnHoer

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Helpful to 2 out of 2 people

I found obtaining a perosnal loan (secured or unsecured) a good option. They are less convenient (I find that a positive thing), but they don't have the same potential for abuse. There's a decreased risk for repeating the same scenario and yet build your credit.

1 Contribution
0 People Helped

would it be a good idea to file for bankruptcy first then do this or just so this and see what happens?

With most secured cards you will be approved regardless of credit. The question of bankruptcy is much more complex and depends on a number of factors.

Review by
CK Moderator

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I just did a credit score simulator and it said that my score would go down if getting a card with a 200 limit. How can that be?

The simulator assumes will get a hard inquiry. However since secured cards have no credit checks this may not be correct.

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CK Moderator

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My ck score is 629 and I have 1 public and 2 cc accounts showing as negative on my credit report, but I paid them completely almost 2 years ago, the public debt is supposed to be removed from my credit report in 3 months and my oldest cc account is supposed to be removed in may, the 2 cc have been closed by the grantor, so I'm afraid that this will lower even more my credit report. on my credit report card says that it will be good to get a cc but I'm afraid of being declined. Should I try to get an unsecured card or should just get a secured card?

Orchard Bank has a card that will either give you a secured or unsecured based on your credit. One application and they give you better of what you qualify for.

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CK Moderator

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i have no credit history because i moved to the US recently , what if my wife adds me to her credit card as an authorized user , will this help my credit score better than a secured card or same ??

Reply by
snop523

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she has to add you as a co-owner of the account, making you responsible for the account as well, being an authorized user just gives you permission to use it

2 Contributions
0 People Helped

I am constantly being declined for credit, since I want to consolidate my debts to pay one monthly payment to one entity. My cc payments are ever increasing; I always pay before time, and I am never in default on my payments. However, I have a delinquent bill on there. My score has gone down to 612. Can a secured card improve my score, if I meet all the stipulations as stated in this article? How can I get out of this torture, when I do pay on my debts, and on time at that!!!? Thanks!

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