For many consumers, an unexpected financial emergency can lead to damaged credit making it difficult for them to increase their credit score, obtain loans, a mortgage or even a credit card. A poor credit history can be difficult to live with, especially if lending agencies and potential creditors are reluctant to provide you an opportunity to re-establish your credit. Fortunately, there are ways to improve your financial crisis through the use of a secured credit card.
What Is A Secured Credit Card?
The truth is this form of credit is not all that much different from your standard credit card. In fact, this card functions just like a normal credit card with one exception. In order to use a secured credit card, the cardholder is required to make a deposit against the credit limit of the account. This deposit is then used by the creditor as a form of security in the event that the borrower defaults on their payments.
In most cases, the credit limit for a secured credit card is roughly 50% to 100% times the amount that was made as a deposit. For example, if you make a $ 2,000 deposit then the credit limit would be between $ 1000 and $ 2000.
One minor drawback that comes with a secured credit card is the amount of fees that are incurred by the user. They include an application fee, processing fees, annual fees and various other fees. In the event you find yourself needing a secured credit card you should make sure to avoid any cards that have high fees because they can significantly impact your limit by decreasing your deposit amount.
How To Take Advantage Of The Secured Credit
Because someone's credit history is normally damaged by their inability or failure to make payments on time, a secured credit card may be the answer to putting their credit history back on track. This is due to the fact you can use this card to demonstrate that you have the capability to make regular payments in a timely manner and in the correct amount.
In order to truly reap the benefits from this process the consumer needs to make sure that the credit card issuer reports to all three of the major credit bureaus, otherwise the card will not be as beneficial in reestablishing their credit.
If you apply for this card and get approved to receive it, always be sure to keep in mind that this card is to be used to rebuild and improve your damaged credit history. Avoid using this card to incur additional debt and instead focus on making small purchases that you know you can pay off once the bill arrives in the mail. Never, charge an item on this card that you cannot afford to pay for once the bill becomes due.
Proper management of a secured credit card will help you develop good financial habits to include making payments on time and in full. After demonstrating this financial strength for one or two years the credit card company may allow you to convert to an unsecured credit card and you will be one step closer to having a better credit history, score and report.