Secured Credit Cards – The Best Way to Build Credit From Scratch

There are very few creditors that will lend you money if they cannot evaluate the risk of not being paid back. When you do not have any credit history there is no evidence that you intend to pay it back. There are a couple of ways to get that first item on the credit report. You can attempt to apply for a credit card from an issuer that is targeting people with bad credit. However you should know they will try to get as much money out of you. There will be annual fees and you will also be charged a high interest rate. You may even be required to pay an account opening fee, so building your credit can end up being costly.

You can approach in a way so there is no risk to the banks. They are called secured credit cards and while it is a cheaper option than the one mentioned above, you will not find a card with no annual fee. It works by opening an account with a bank and making a deposit. This deposit will then become your credit line and the amount requested is usually around $ 500. Of course you will not be able to pick your own bank and just say you have money in the account. It is hard to find secured credit cards with major banks, so you probably have to find an internet bank or a credit union.

It does take a little while to build credit this way. It is not going to happen overnight. Your credit score will slowly increase every month as the payments are reported to the major credit bureaus. Of course it is essential to make sure to pay on time, and probably within a year you will be able to qualify for a regular credit card.

Many people thinks that prepaid cards are also able to establish a history, but none of them report anything on your report. The reason is that you are adding money to a debit card and can use it right away. There is no credit involved.

The problem with this choice is not so much the monthly fee that will run you about $ 10 per month (for less than a year), but that you need to pony up a large security deposit. If you can not afford to have that amount of money tied up, then you may be in danger of missing a monthly payment as well and that would damage the history too.

Source by John Allen

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