Welcome to Part 3 of our powerful series, Credit Cards 101. In parts 1 and 2 of this series you have already learned some important information about how properly managed credit card accounts can be very effective tools to help you build better credit. Of course, while well managed credit card accounts can potentially be great for your credit scores, credit card debt can actually wreak havoc upon your credit scores very quickly. For best results (both financially and from a credit score standpoint) it is important to develop the habit of paying off your credit card balances in full each month.
What If You Cannot Qualify for a Credit Card?
Bad credit can be embarrassing and frustrating for many reasons. If you have credit problems then one such struggle you may have faced in the past is the fact that poor credit can make it difficult to qualify for loans and credit card accounts. The last thing anyone wants to do is to apply for a new credit card account to help rebuild their credit only to be turned down. Thankfully, even if you have credit problems, there is likely still a way for you to qualify for a new account: the secured credit card.
What Is a Secured Credit Card?
In many ways secured credit cards are similar to their more common unsecured counterparts which you regularly see advertised on television and online. (What’s in your wallet?) Both secured and unsecured credit cards will probably show up on your 3 credit reports (though some small banks and credit unions will only report to 1 credit bureau). Both types of cards come with a preset spending limit, may charge interest on the purchases you make, and have a monthly due date. If you make a late payment on either type of card you will probably be charged a late fee and a late payment will likely be reported to the 3 credit bureaus.
The primary difference between secured and unsecured credit cards occurs at the very beginning whenever you open the account. With a secured credit card you are generally required to make a deposit with the issuing bank which will in turn be equal to your credit limit on the account. In other words, you can make a $500 deposit to secure a credit card with a $500 spending limit.
Since you are securing the account with your own personal funds the bank is taking a much smaller risk in approving you for a new credit card account. As a result, secured credit cards are much easier to qualify for even if you have no credit or a history of past credit mistakes.
Credit Rebuilding Potential
As mentioned earlier, a properly managed credit card account can be a powerful credit building tool. Secured credit card accounts are no different. If you establish a new secured credit card and keep the balance paid off each month then your credit scores may potentially benefit.
Keep in mind, however, that a new credit card account (secured or otherwise) is not going to erase any past negative credit history which is currently showing up on your credit reports either. A secured credit card does have great credit building potential, but it will not be a cure-all. One positive account is not going to offset all of the other negative information on your credit reports.
A secured credit card can be a terrific component of your credit rebuilding plan, but it is just that – a component. If you have other credit problems then seeking professional help may be the wisest step you can take. Click here to schedule a Credit Report Review with one of our pros and learn how the Credit Pro’s team of experts may be able to help you to start improving your credit today.