Both the global and domestic economies have seen great difficulty in regaining their footing in the years that have followed the Great Recession of 2008. Overall growth has remained highly-stagnant in many parts of the world, particularly in these United States. That said, when economies are as soft as they are right now, there are usually a few silver linings from which consumers can benefit, and perhaps the most significant of those is low interest rates on loan products. That is the case right now in America, where interest rates are expected to remain at exceptionally low levels for the foreseeable future.
This is great news for the consumer in the market for a house, a home refinance, a new car, or anything else of substance that he or she is planning to purchase. However, it is only great news if that consumer’s credit history and score is positioned in a way that allows for access to these record-setting rates.
If you are someone who is interested in grabbing a hold of a terrific rate on a house or car, but your credit is not the best, it’s time to do something about it while there’s still time…and one of the easiest and most effective ways to help rehabilitate your credit is through the use of a secured credit card.
Secured Credit Cards
The key difference between a secured credit card and an unsecured, or “regular,” credit card is that the secured card is opened by the account holder making a deposit with the issuer equal to the amount of the credit line desired. For example, if you want a secured card from XYZ Bank with a credit limit of $1,000, you have to make what amounts to a security deposit of $1,000 with that bank. As someone who presently has a checkered credit history but wishes to open a new, “clean” credit line to begin repairs, this is a winning proposition for both you and the card issuer; you get your new credit line to use and properly manage, and the bank grants you this line with no risk on their part because they have your money on deposit as full collateral.
Secured Cards are No Different than Unsecured Cards When It Comes to Use
One of the questions frequently asked about secured cards is if there is something about how they look that distinguishes them from unsecured cards. Many people with blemished credit are understandably self-conscious about their situations, and are concerned that there is something on a secured card that might tip off a merchant that the card is “different.” There is no such cue on a secured card. It is a Visa or MasterCard credit card that looks like any other Visa or Master Card credit card to a merchant.
As for what you can purchase with a secured card, again, you can buy anything that can be purchased with an unsecured card. The only limitation has to do with your credit limit, which is the same issue that you would encounter with an unsecured card. On that point, note that secured cards generally have lower limits than those available with their unsecured counterparts. While an increasing number of secured cards are available with limits as high as a few thousand dollars, limits of $300 to $1,000 are still prevalent; remember, the limit is typically a function of how much money a person has to put on deposit, and few people have several thousands of dollars to leave at a bank to secure a credit card. Sometimes, lower card limits can be a challenge, like when you want to rent a car. It is typical for a rental car company to put a hold of several hundred dollars against a customer’s credit card, and if the card happens to have a limit of, say, $300, there’s a good chance the transaction won’t go through.
Aside from limit-related obstacles, however, secured cards can be used to purchase the same goods and services that unsecured cards can buy.
Secured Card Fees
While this should not be a big deal for the person serious about using a secured card to improve his or her credit, it is worth noting that secured cards typically carry higher fees than unsecured cards.
The annual fee of a secured card will often run around $40. Again, not a big deal, but it is something you won’t normally encounter any longer with an unsecured card. Additionally, you will still pay interest on any balances you carry, just like you would with an unsecured card, and secured card rates tend to be a little higher.
One caveat: There are some less reputable card secured card issuers out there that have been known to tack on monthly “insurance” fees and other junk fees that exist really just to take advantage of a credit-challenged consumer’s situation. By going with a secured card from your local bank or credit union, or from a well-known national issuer (more about this in a bit), you won’t have these problems, but it’s something of which to be aware.
The Best Way to Use a Secured Credit Card as a Credit Rehabilitation Tool
OK. You have your secured card. Now…how do you use it to begin the process of restoring your credit?
The first thing to remember is that the rules that normally apply to keeping an unsecured card account in good standing apply on steroids to the secured card account holder. For example, while it is never a good idea to make a late payment with an unsecured card, it can be ruinous to your credit repair efforts to do so as a secured card holder. It’s important that you see your secured card as a last chance for good credit.
Another important factor of which to be aware is something called the debt utilization ratio. That is a fancy term for describing the amount of available credit you’re actually using. For example, if a person has two credit cards, each with $5,000 credit limits, then he has total available credit of $10,000. If one of those cards presently has a $5,000 balance, and the other has a $3,000 balance, then his debt utilization ratio at that time is 80%, because he’s carrying balances that total 80% of his available credit.
Using the above example, 80% is way too high for a debt utilization ratio. Those with the best consumer credit profiles tend to have debt utilization ratios of no more than about 10%, which means that if you’re relying on a single secured card, and your limit is $1,000, you, ideally, don’t want your balance to ever stray past $100.
Please note how important debt utilization is to your good credit: The analysis of an individual’s debt utilization ratio accounts for roughly one-third of his credit score; one-third. The bottom line is that you want to keep your ratio as low as possible.
Some of you might roll your eyes when you read that, disappointed that you have this new, secured card backed by a bank deposit but unable to use more than a small portion of the available limit, but remain mindful of why you’re doing this in the first place - the sole reason you have the secured card is to use it as a strategic tool to rebuild your credit; you don’t have it as a means to buy a lot of “stuff.”
After about a year of being a good steward of the secured card, you will become eligible for an unsecured card account. You can either take this up with the bank at which you have the secured card, or begin making applications elsewhere. This is what you want, of course…to make more progress rehabilitating your credit by getting back to the point where you can have a “regular” credit card and begin managing it just as prudently.
Where to Find a Secured Card
Thanks to the Internet, finding quality secured cards is not a problem, but you might want to first look to a local bank or credit union that can offer you better terms and/or a lower credit limit entry point. If you would like to see what is available online from nationally-known issuers, one good place to look is over at Lending Tree.
So many of our readers have asked for a referral to a credit repair program that we now have a recommendation on this (by way of an online platform). The secured credit card is a great start to rehabilitating your credit, but there will be more to do. Ultimately, a superior credit profile will consist of 1-2 lines of installment credit (e.g., home loan, car loan, school loan) and 2-3 lines of revolving credit (like an unsecured credit card). You won’t get there overnight, but beginning with a well-managed secured credit card that turns into a gateway for additional lines of both secured and unsecured credit is a great first step.
If you want to go further, and faster, into working toward a better credit profile, you’ll have to do a little more work. On that note, you might have an interest in learning more about a straightforward, easy-to-use, computer-based program designed to help those who are “credit challenged” to remedy their credit-related problems: Credit Repair Magic (in the interest of full and fair disclosure, please note that we are compensated affiliates of the Credit Repair Magic program).
Several excellent resources make up the entire Credit Repair Magic package, but the centerpiece of the program is the “Bad Credit Eliminator” feature. The Bad Credit Eliminator is the highly-actionable program that walks you, step-by-step, through the entire process of cleaning up your credit. However, addressing negative items on your report is just one part of your overall credit picture. Other resources in Credit Repair Magic discuss a wide variety of other credit-relevant issues, including the importance of proper debt utilization (the amount of available credit that you’re actually using), the kinds of loans that actually reflect more favorably on your credit, and even why it is may be best, at times, to leave some negative items on your credit report.
So, what do you receive in your Credit Repair Magic package? A bunch. What follows is just a brief overview of all that is contained in Credit Repair Magic, because to detail and explain all of the features would take up pages and pages:
The Credit Repair Magic “Bad Credit Eliminator.” A trademarked process for restoring your credit quickly and easily.
The Credit Repair Magic “Seven Shortcuts to Success” Guidebook. This material is particularly valuable when you are looking to qualify in a hurry for a home or auto loan. It presents targeted strategies to help you to improve your score even faster.
The Credit Repair Magic “Solving the Credit Puzzle” Reference Guide. A terrific resource…131 pages packed with a mountain of information on the subject of credit repair. This resource, by itself, is worth much of the cost of the entire Credit Repair Magic program.
The Credit Repair “Solving the Credit Puzzle” Reference Guide - Express Version. A condensed, easily-digested, 36-page version of the full reference guide, when you need to go back and hit the “high points” of the full reference guide but don’t have time at the moment to dig through the more substantial version.
Lifetime access to any and all upgrades/additions made to the comprehensive Credit Repair Magic program.
Credit Repair Magic contains additional bonus materials, as well, but let’s talk about some other great features. For one thing, there is the excellent support available from the program architect. To begin with, you receive unlimited email support during the first 60 days of your paid access. This is particularly important, because it is typically during this period when you will have the greatest number of questions about what it is you’re doing as you work your way to better credit. What’s more, even after the first 60 days, the folks at Credit Repair Magic will continue to entertain your questions on a discretionary basis for an unlimited period of time, as circumstances arise in your credit repair journey that you feel are in need of some extra attention.
In addition to all of this, you enjoy the rock-solid protection that comes with the product’s accompanying 60-day, money-back guarantee. Unbelievably, this means you can get right to work using the full resources of Credit Repair Magic, including the unlimited email support, and if at any time during the first two months you decide this is not for you, you can still get all of your money back.
Rehabilitating credit to the healthiest level possible may be the single most important step any of us takes in the realm of consumer finance, and one that is imperative to you realizing the best available loan rates, such as the ones we’re likely to see for a while. To learn more about the Credit Repair Magic product, or to purchase the program directly, Click Here.
By Robert G. Yetman, Jr. Editor At Large