Choosing Secured Credit Cards to Strengthen Limited Credit Histories

Consumers who are looking to boost a very low credit score after debt settlement may want to consider the benefits of applying for a secured credit card account. Secured credit cards are typically easier to get than traditional unsecured credit cards but there are some guidelines for selection and use. Not all secured credit cards offer the same benefits and if you are trying to strengthen your credit score, it is important to make the right financial decisions for your spending habits and your lifestyle.

Understanding Secured Credit Cards

Secured cards differ from traditional cards in that consumers are required to make an initial cash deposit into an account with the card provider. That deposit amount varies by provider but will become the credit limit for the cardholder. When purchases are made, account holders will receive a statement in the mail similar to traditional statements. The balance should be paid in full within each billing cycle to ensure you have full spending power.

Choosing the Right Card

There are several things you should look for in a new secured credit card to make it advantageous to your current financial situation and future credit goals. These considerations include:

Credit Reporting

A very important term of a secured credit card for the cardholder trying to improve a weak credit history is to ascertain whether or not the card provider will report account activity back to the consumer credit reporting bureaus. Secured cards from providers who do not report account data to these agencies are not beneficial to your credit improvement goals. If there is not evidence of the provider reporting credit data to consumer credit bureaus, contact the company directly to inquire before selecting a card.

APR Terms

Since secured credit cards are often offered to those who may be a credit risk to card providers or those who have a limited credit history, the annual percentage rate on this type of card will generally be higher than APRs on traditional credit cards for consumers with good credit ratings.

Fees and Penalties

Again, secured cards are often used by those not yet proven to be creditworthy to traditional lenders. As a result, many secured card providers tack on fees for multiple services including monthly account maintenance. Secured cards may also have stiffer penalties for late payments or for overextending your credit card’s spending limits. These fees and penalties will be outlined in the fine print of the card agreement so be sure to read it thoroughly and carefully.

Deposit Requirements

While many secured credit card providers will require between $300 and $500 in upfront deposits, some providers may insist on more. Find a card that has a deposit requirement that is reasonable for your personal budget but will also give you some spending power after monthly account fees have been deducted.

You may also like...

Leave a Reply

Your email address will not be published.