Consider Secured Cards While Rebuilding Your Credit Score

Whether you have bad credit from money mismanagement or from a financial disaster, the result is the same: poor credit limiting your options. Despite the fact that it takes a while to rebuild your credit, there are credit cards designed for that very purpose. Although you may have been advised to avoid credit cards altogether, they can be used to your advantage if used wisely. Learn more below. 

Selecting a Credit Card

As you’re probably aware, there are many types of credit cards on the market today, from department store and gas cards to prepaid, secured and unsecured credit cards. With so many choices available, it’s hard to know which credit card is the best and what to look for in a credit card. If your credit is already damaged, you options may be limited. 

Regardless of what type of credit card you choose, look for the one that charges the lowest interest rate and has the fewest amount of fees. Rewards credit cards can also be a wise choice. If you’re spending money, why not get some of it back? Overall, though, there are basically two types of credit cards: secured and unsecured. 

Unsecured Credit Cards

Unsecured credit cards are what their name implies. You are issued a credit card by a certain creditor and agree to make monthly payments on the card, payments that include principal and interest charges. If you fail to make payments as agreed, for whatever reason, you will be charged additional fees, the account may be sent to a collection agency and you may be taken to court. If your credit is already on shaky ground, getting a new unsecured credit card may not be the best idea. 

Secured Credit Cards

Secured credit cards are credit cards that require you to make a deposit or put up some sort of collateral prior to being approved. In fact, the deposit or collateral is general a condition of approval. The credit limit you have on your secured credit card is based on the value of the collateral or on the amount of your deposit. If you deposited $500 into an account with the creditor, your secured credit card would have a credit limit of $500. If you fail to make the monthly payments, the credit card company keeps your deposit. 

How Secured Credit Cards Can Help Rebuild Credit Scores

Secured credit cards generally do not have a high credit limit so you’re not risk of running the balance up too high. Additionally, there really isn’t a concern about not making the payments on time because the creditor has your deposit. That said, your on-time payments will improve your credit scores.