This is the perfect time to be a consumer of credit. Mortgage rates are low, with some banks offering standard, 30-year mortgages at less than 4-percent. Auto lenders can barely get a few percent, and credit card companies are routinely offering people great deals for introductory periods and balance transfers. The big question for consumers is how to get that credit. Many people today can’t take advantage of great rates because of their credit histories. While lenders are handing out deals like candy, they are generally only interested in lending to people with better than average credit.
The good news for consumers is that secured credit cards are highly accessible. Even if you have collections or charge-offs on your record, you can likely qualify. The bank is taking much less risk on you, and they are willing to work around your bad credit history. The good news, too, is that these card providers report to credit agencies in the same way unsecured card lenders report. This can lead to positive credit implications, but it is important for you to understand the limitations of these cards in helping you.Is a secured credit card an effective tool for rebuilding my credit?
Though secured cards cannot hurt, there is evidence to suggest that their positive impact may be exaggerated by some within the credit community. If you have currently bad credit, then one positive account can only do a little bit to help. Even with a new, positive account, you will still have the negative information bringing down your score.You should understanding in the beginning that a secured credit card is not a magic bullet. Future creditors will appreciate the good record. They won’t just overlook the rest of your history because of one new account, though.
Is there any type of consumer who can benefit from a secured card?
Just because people with wrecked credit can’t really benefit from secured cards does not mean that every person will miss out on benefits. These cards can be powerful tools for people who are just beginning with their credit foundations. Many consumers run into major problems when they haven’t yet been given the opportunity to establish credit. With a secured card, these consumers get their start, and they can then move on to unsecured cards.
Likewise, these cards work well for people who have recovered from seven years of purgatory. If bad credit marks have just fallen off of your credit history, then you can partially rebuild through secured cards.
Who shouldn’t be using secured credit cards?
Some people believe that it’s a good idea to use secured credit cards in order to bring down their credit utilization rate. One of the elements of your credit score is the percentage of credit you are using at the time of the credit inquiry. If you have $10,000 in available credit and you’re using only $500, then you will have a much higher credit score than a person using $6,000.
The truth is that secured credit cards can bring down your utilization rate. There are better ways to use your resources, though. The money you spend on a deposit could be used to pay down your other credit cards. This would also lower your utilization rates. It would also preserve your average age of accounts. With your credit score, older accounts are always better than newer accounts. By opening a new secured credit card, you will add a recent account that drags down your average.