Good credit is hard to earn yet fairly easy to lose. One missed credit card payment, collection account, or credit inquiry could send your score plummeting. You can only imagine what could happen to the credit history of someone who lost a job, went through a divorce, or struggled horribly with credit. Their ability to borrow money, apply for a credit card, get a house, car, or a job are very limited and also costly (due to higher interest rates and required deposits). As much as they may want to improve their circumstances, getting back to the 800 club can take time.
Secured Credit Cards
Making timely payments, getting negative marks off your credit report, avoiding inquiries, and not opening or closing any recent accounts are all effective ways to boost your credit. However, for those looking to take it a step further, there are secured credit cards available. These are credit cards, often with a small limit and higher interest rates, that are offered to individuals for bad credit. A cash deposit is generally required as collateral.
All it Takes is a Cash Deposit
Though each credit card is different, for most secured credit cards, applicants are required to pay a cash deposit. The amount deposited can, in some cases, be the equivalent of your card limit. Other times, however, the initial deposit is deducted from your total card balance. For instance, an applicant applying for a secured credit card could get approved for a $300 card limit and have to make a deposit of $300 before the card can be used. Other card companies may approve them for a $300 card limit and send out the card with $150 already deducted from it.
If you’ve gotten approved for a secured credit card but don’t have the deposit upfront, you could take out a bad credit payday loan alternative to foot the bill. Unlike payday loans which require you to repay the loan in full on your next payday, these short-term loans give you more time.
Regular Credit Bureau Reporting
In order to improve your credit history, you have to start making your payments in a timely fashion. You may already have credit cards with high outstanding balances and a poor repayment history on file, so, having a secured card can help to paint a different picture. Every month the credit card company reports your payments to the major credit bureaus. These payments help to boost your score and show creditors that you’re making steps towards improving your finances.
Increased Credit Limits
What many people don’t know about secured credit cards is that many of them offer perks to their users. Some of those perks include the chance to apply for or automatically receive an increase in their card limits. A $300 limit could easily be increased to $500 or $1,000. All you have to do is continue to pay the card on time. Increased credit limits look great on your credit report and to other creditors who may be reviewing it. It shows that you’re financially responsible.
Life isn’t always fair and sometimes it costs you a lot – like your good credit. If you’re trying to turn things around for the better, but can’t seem to catch a break, perhaps applying for a secured credit card is right for you. Although the limits are low and the interest is higher than other credit cards, it does provide you with an opportunity to borrow money and show your ability to be responsible. In doing so, you will be rewarded with everything from higher credit limits to an increased credit score.