Secured Credit Cards Are A Great Way To Establish Your Credit
Secured credit cards are a great way to build up credit if you have a bad or non-existent credit rating. You are guaranteed to be accepted, and within a year you can establish or begin to noticeably repair your credit. They are not normally the best deals in terms of interest rates, and overall financial effectiveness, but they’re not so bad. Oh, who am I fooling, secured credit cards are the worst deals out there, and are pretty much a last resort for people that can’t get a regular credit card.
When I applied for my first credit card, I was rejected two or three times. I wasn’t really sure why at the time, but the banks alluded to ‘a poor personal credit history’. This mystified me, because as far as I understood I had no credit history whatsoever. I was in my early 20’s and finishing up college, and I had never bounced a check or paid a bill late in my life. Well, not very late at least.
The banks I applied to kept offering me secured credit cards instead, but I resisted them at first. I attempted to get a credit report, but it came back blank, confirming my suspicion that I had no credit history. So, here was my predicament. I had no credit, but I couldn’t establish any credit because I couldn’t get a credit card, because I had not credit. How is that for a catch-22?
I could almost hear Joseph Heller laughing in his grave when I finally decided to sign up for a secured credit card. Secured credit cards all work with the same idea. You give the bank or credit company a deposit, and they give you a credit line which is usually equal to the deposit you gave. The bank is therefore at zero risk because if you fault on your payments they just take it out of your deposit. You, on the other hand, have to give up a chunk of your funds to sit idle with the bank, collecting no interest, and you have to pay a fairly high interest on your balance.
The good news is, after a period of time that is usually about a year, you get your deposit back and are then given a normal, ‘unsecured’ credit line, assuming you were good with your payments. If you had especially horrible credit before hand, or were late on some of your payments, it may take longer than a year to get your deposit back.
So, overall, secured credit cards are a kind of last resort, as they are never really a good deal for you. However, they are an excellent way of repairing or establishing credit.
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