Using secured credit cards to rebuild credit would be the best way for anyone who wants to go ahead and refresh their past credit histories. Because the financial crisis has gotten people dealing with credit scores that shoot beyond what is considerably acceptable by bank standards, application for credit cards have become more rigid and thorough.
While it can be considered as strict, such methods are basically to secure the interests of such financial institutions. These banks have had to deal with great losses due to delinquency when it comes to responsibility with payments for credit cards. For people who are still looking forward to securing a credit card so as to allow for purchasing capabilities as well as rebuilding credit, a good idea that one can pursue would be secured credit cards to build credit.
About Secured Credit Cards
Just like a credit card, secured credit cards basically function to allow for spending with the use of plastic. Because there are many perks that credit cards can provide, like giving the freedom for spending even when money is not available, it has become a risky venture for the different lenders. Secured credit cards function in a way that there is money that can be utilized in the form of a plastic card at your hand. The difference lies in the way money is being utilized.
When it comes to credit cards, one can go ahead and make purchases even when there is no money that is available yet. It makes for convenient spending, however it becomes a problem especially when the people who use them cannot afford to pay off the bills they usually incur. Secured credit cards on the other hand, allow for the use of plastic, but lenders require people to deposit money that will be equal to the credit limit which will be set for the secured credit card.
How Secured Credit Cards Work
The factor of having to deposit money to get approval for a secured credit card is basically what differentiates it among other credit cards. One may say that the card no longer functions as a credit card should, because it requires a deposit. It still does, however it is quite similar to how a debit card works. Because people who have messed up their credit scores have poor chances of getting approved for credit cards at such a rate, there would be a safeguard needed to assure such lenders that the risk that they partake in will actually be well compensated for.
The deposit for secured credit cards would work enough to let people be more cautious about their spending. At the same time, it would give lenders assurance that even if a person falls behind with their payments, there is money set aside to allow for payments of such purchases.
The Main Purpose of Secured Credit Cards
Now you might be puzzled as to why people would go about getting secured credit cards if they are in financial trouble? The reason is because getting secured credit cards would get them back on track with restoring their credit history. This is why there are a lot of people who pursue the idea of getting secured credit cards to build credit and to increase their chances of getting approval for credit card applications as well as for loans in the near future.
Dealing with a bad credit report can actually stick to one’s record for almost ten years, which is the reason why people need to have something that will refresh their credit report. This is exactly what a secured credit card will do. Because it will function as a credit card but with deposited money that will guarantee the lender of assured payment, it would make for a more responsible way of dealing with credit card spending.
One will also find it advantageous to get a secured credit card when it comes to rebuilding good credit standing. The reason being is because these financial institutions will be in touch with the different credit bureaus. One reason would be to check on your credit report, and the other would be to inform these credit bureaus that you have availed of a credit card with them.
Now you must not fear the reporting of your application by your creditor, because this will be in good faith. The reason being is that these secured credit cards will be helping you out with restoring your credit history’s good standing. When you manage to work out in keeping your secured credit cards to build credit with such a financial institution, these creditors will be more than happy to report such progress to these credit bureaus. Because you will find that such reports will work to your advantage, getting a secured credit card will be the most feasible idea for you to take in order to restore a good credit standing, thus providing you with more chances of getting approval for credit card applications in the near future. It will also serve as grounds for getting more chances of securing loans, among others.
Applying for Secured Credit Cards
The process for applying for secured credit cards will be the same as getting a regular credit card, with such requirements as a checking account. Deposits can be as low as $95 and will allow for spending of $300 for some banks. Because of such a convenience, these banks are quite strict when it comes to payments. So they may offer higher penalties when it comes to missed payments of their clients.
One should take note however that secured credit cards to build credit should have no application fees when you want to secure them. They should also have low annual fees to help you get yourself back on track. Another perk of secured credit cards is they will be converted into a regular, unsecured credit card within 12 to 18 months after you have successfully paid off monthly dues on time, making for a more convenient way of having purchasing power and restoring good credit under your name.