Fixing Bad Credit with a Secured Credit Card
If you have bad credit, it can be very difficult to get a loan when you need one. This can mean that it could be tough for you to buy a car, get a mortgage, or achieve many other milestones in life. Even if you are able to get a loan, if you have bad credit, you could find yourself receiving a much higher interest rate on your loan than you would get if your credit was better. This can be very costly and can make it tough for you to manage your expenses.
So how can you improve your credit score?
One way is by using a secured credit card. What is a secured credit card? A secured credit card works just like a regular credit card in the sense that you have a credit limit, that you can make purchases that deduct from your credit limit, and that you can repay the balance all at once or with monthly payments. However, the major difference is that the card is “secured.” This means that you put down a deposit against the credit limit on the account.
For instance, if you put down $500, you could receive a secured credit card with a $500 credit limit. The actual limit on your card will depend on your situation and the card that you have, but the overall concept remains the same for all secured credit cards.
As you use the card, and repay the amount owing on the card, this information is reported to the credit bureaus. Over time, showing that you are able to successfully make purchases on a credit card and pay your bills on time will improve your credit rating. However, if you have bad credit, you might not be able to get a typical credit card, but a secured credit card may be an option for you.
It’s important to note the difference between a secured credit card and a prepaid credit card. A prepaid credit card works like a gift card. There is a certain value added to the card and once you use up this amount, the card is empty. There is no credit limit on these cards, there are no monthly bills to pay, and the activity on these cards is not reported to the credit bureaus. Therefore, using a prepaid credit card has no affect on your credit rating or credit score.
Building Credit Takes Time
You can hurt your credit rating very quickly, by missing payments or defaulting on loans. However, improving your credit score takes much longer. This is because the credit bureaus will need to see that you have an established history of borrowing money and paying it back.
The issue is that, if you have bad credit, it can be difficult to borrow any money, which makes it difficult to show that you can successfully pay it back. This is why a secured credit card can be a good option. If you aren’t able to get a standard credit card due to your current credit score, you will likely still be able to get a secured card. You can then use this card to build up a payment history and improve your credit score.
If you have no credit, you may be able to build up a history and build a credit score quite quickly with a secured credit card. However, if you have a poor credit history or bad credit, accomplishing this will take longer. That said, since your credit score can have a serious affect on several aspects of your financial life, it’s often worth the effort needed to repair your credit score.
If you’re thinking about getting a secured credit card, shop around. Some cards have annual or monthly fees, so you will want to check out what is available before you put down a deposit.
It is also important to be cautious with any organization that claims to be able to “fix” your credit score quickly. This is not possible. The only thing that can be done to improve a credit score quickly is to correct errors in your credit report, and you do not need an organization to do this for you. You can do this yourself by ordering a copy of your credit report from the major credit bureaus (Equifax and TransUnion), looking for errors, and reporting them directly to the bureaus. Use extreme caution when talking with anyone who claims that they can improve your credit score quickly for a fee.