Many Americans have had a very bumpy financial ride through what is now being called, "The Great Recession." One of the casualties many have faced is a bruised credit score. Whether you actually had a foreclosure, or simply went through a loan modification, chances are your credit score was affected. Even a few late credit card payments can destroy years of good credit management. There is a great tool that I have recommended for years that can be used to quickly rebuild damaged credit. This is how I restored my own credit after bankruptcy.
I learned very quickly, that even though I don't borrow money very often, that my credit score could affect other areas of my personal finances. This would include insurance rates, deposit requirements for utilities, the ability to be able to open a checking account, etc...
Secured Credit Cards
Most of the information in this article comes from what I call my "insider secrets file" from the years that I worked as a mortgage broker. Our office specialized in helping people with lower credit scores. In many cases, we had to consult with a client for several months to rehabilitate their score before we could take a shot at a mortgage approval. There is quite a lot more on this topic covered in my recent book Credit Scoring Secrets.
Secured Credit Cards require that you first make a deposit equal to the amount of credit that you are applying for. This represents a no risk proposition for the lender. If you default, they have your deposit to look to to recover their money. Since there is no risk, your credit score is not an issue. Virtually anyone, regardless of credit history, can get a secured credit card (the only exception to this would be those that have a criminal record involving financial fraud). This allows someone who has damaged credit to get back in the game without waiting years to get approved for a traditional credit card.
Secured Credit Cards Carry Higher Fees
A typical secured credit will have a $35 -$40 annual fee. If you carry a balance, you will also be charged interest. If you exceed your credit limit you may be hit with overdraft fees (although you can opt out of overdraft to prevent this from happening). I recommend that you have three to four open credit card accounts. So, based on any accounts you may already have, this would determine how many secured credit cards you should consider adding to your portfolio. Secured cards carry the Visa or Mastercard logos. You can count on them being accepted anywhere Visa or Mastercard is. The only exception to this is when renting a car. Some rental car agencies do not accept secured cards, so be sure and ask ahead of time if you plan on using your card to pay for a rental.
How To Use Your Secured Credit Card To Quickly Boost Your Credit Score
It goes without saying, but you need to make your monthly payments on time. In fact, my advice is to pay your payment within a couple of days of receiving your bill each month. The faster you get your payment in, the more quickly it will show up on your credit report. The other super important factor is to never (and I mean never) use more than 50 percent of your available balance. One third of your credit score is based on an analysis of the percentage of available credit you have used compared to your overall limit. If you obtain a secured card and max it out, you will end up lowering your credit score. The best source of secured credit cards I have found online is through the website BankRate Monitor.
Other Easy Approval Credit You Might Want To Consider (No Deposit Required)
Target (the easiest option here is to apply in the store during checkout)
*** Additional sources of fairly easy retail credit accounts are department stores and gas stations.
One More Way To Get Even More Points Added To Your Score
We found a local credit union near Daytona Beach that would gladly make secured loans to our clients. They provided an option for an individual to deposit as little as $300 in a savings account and then use those funds as collateral for an installment loan. You should be able to find a community bank or credit union in your own city that will provide this arrangement. If you establish three secured credit cards and one installment loan, you will be very well positioned to dramatically improve your credit score.
Secured credit cards represent an excellent means of rebuilding damaged credit or simply a way to establish credit for the first time. The primary 'downside' of these cards is higher fees; but they do represent an attractive option for those needing to establish or rebuild credit quickly.
If you have used secured credit cards to rebuild your own credit, or if you have your own idea or strategy to pass along, please use the comments section below and we can start a conversation.
Helping you make the most of God’s money!