How to Use Secured Credit Cards to Establish Good
Credit History
By Jeanette Joy Fisher
If you travel, you
generally need a credit card, even if you're going
to pay cash. You need one to make your
reservations to rent a car, for example, and
you'll also need one when you get to your
destination to sign in at your motel. Love them or
hate them, credit cards are simply a fact of
today's world. However, getting a credit card can
sometimes be a challenge, especially if you've
never had one before or if you've run into
financial difficulty in the relatively recent
past. But that doesn't mean you can't get a card,
and one way to do that is to sign up for a secured
credit card.
Here are a few things you should know if you're
thinking about getting a secured card, but first,
let's define the term. A secured credit card is
one that requires you to put a certain amount of
cash into an account, which then becomes your
collateral for a card (often that amount is
$300–500).
With that money in the account, you're free to
charge up to that amount on your secured card. It
can be a great way to get started, and if you
continue to stay current, you'll sometimes be
rewarded with either a credit limit increase that
exceeds the amount you initially deposited or an
offer to obtain an unsecured card.
A good place to look for a secured credit card is
your local credit union. Quite a few of them offer
their members secured cards, and many of them
waive the annual fee that nearly all secured cards
charge. If you don't belong to a credit union,
shop around before you sign up for a card. Some
companies even charge a fee to apply for a card,
and the annual fees can vary greatly. You'll also
want to read the fine print carefully. You want to
know the interest rate, the fees, and the required
deposit, and anything else that might be required.
You also want to know if the company will report
your credit history to all three of the major
credit bureaus. This will be important later on,
because the main reason for getting a secured card
in the first place is to establish a credit
history that will serve as a stepping stone to
more credit later on. If the company doesn't
report your good payment habits, you're not
gaining that advantage. How can you tell if they
ARE reporting? You should begin getting offers
from other secured credit card companies after
you've made several payments on time. After about
a year of excellent payment history, you'll often
be able to qualify for an unsecured credit card.
The best way to put your card to use in building
(or rebuilding) your credit is to make a few small
purchases each month and then pay them off. Since
they generally carry high interest rate, you don't
want to carry a balance on a secured card. Your
goal is to establish a good payment history, and
although they serve a purpose, unsecured credit
cards should best be looked at as a means of
gaining entry into the unsecured credit card
world.
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Copyright © 2006 Jeanette J. Fisher
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