Are secured credit cards the right way to go for you?Thursday, July 05, 2012 at 6:45:14 PM
Millions of people across the country saw their credit scores take a significant hit during the recent recession, but now many are seeing improvements in the economy and looking for new credit cards.
But those who saw their ratings drop considerably during the downturn may not yet qualify for new credit cards even as lenders open up borrowing to subprime consumers. In many cases, the only credit card applications available to people who took the biggest hit will be those for secured credit cards.
When you have few other credit options available to you
, a secured card can be a great way to rebuild your score over a period of several months.
Why they're helpful
Secured credit cards typically require no credit check, and
all a borrower needs to do to open one is give their lender a down payment of a few hundred dollars to establish their account's credit limit.
This way, with responsible borrowing and conscientious repayments made on time and in full, you will be able to get your credit score back on track quickly and easily. This, in turn, will allow you to find a number of credit card offers that would not have been available to you. In this way, a secured credit card can act as a sort of "training wheels" to help you establish a strong borrowing history built on smart spending and repayment habits.
Keep an eye out
There are some drawbacks to this type of card, however. The first is that you will typically face far higher interest rates on these cards than other accounts you may have had in the past. Further, there will likely be an annual fee attached.
In addition, because the credit limits on these cards are so low,
they can be easy to max out, which can hurt your credit rating and lead to penalties if you exceed your limit.
Further, you should
make sure that the secured card you're getting reports to the various credit bureaus, so that your progress in becoming a better borrower counts toward your credit rating.
If your are considering a secured credit card application, you may also want compare some prepaid credit card offers which are useful to those with similar credit histories but work a bit differently.