Secured Credit Cards–Finding The Best Card To Build Credit

As we all know, the Great Recession has deeply affected consumer’s credit scores, and their access to credit. A recent study from FICO shows that 25.5% of consumers have a credit score below 599. That is over 40 million people that are considered “high risk” by most lenders!!

If you happen to have had bad credit but you’re ready to start rebuilding your credit, a secured credit card may be the best option for you to rebuild your credit history after having financial troubles. However with many high-risk credit offers, there are some things you must watch out for before applying for a secured credit card.

1. Understand how secured credit cards work. To get a secured credit card, you must open and maintain a savings account, which serves as the security for purchases you make with the card. Oftentimes, credit limits are 100 percent of your savings account total, but in some cases they might be a smaller percentage. After paying your bills on time for 6-18 months on a secured credit card, you should be eligible for approval on an unsecured credit card.

2. Make sure the credit card issuer reports transactions to all 3 bureaus. A portion of your credit score is based on account and payment information. A secured card won’t help you raise your credit score if it is not being reported to the bureaus.

3. Shop around for the lowest interest rate. Keep in mind secured credit cards tend to carry a higher interest rate than unsecured credit cards, but the rates vary widely. Do your homework online, and remember to also, check the grace period. That’s the number of days you have before the credit card company starts charging interest on new purchases.

4. Watch out for high fees. Some secured credit card scams charge huge upfront fees. Avoid those offers and look for a card with no or minimal upfront fees and a low annual fee. Also, see how the fee is assessed. Is the annual fee paid monthly, or is the entire fee charged the first month of use?

5. Finally, once you have a secured credit card, charge no more than you can afford to pay off each month, and don’t max out the card. Keep your spending—including any monthly fees assed—to under 30% of the credit limit. You don’t have to maintain a balance from month to month to build credit history, so pay it off each month.

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About jenniferhamby

Jennifer Hamby, Executive Vice President of My Credit My Future, has worked in the financial sector since 1996. She is dedicated to educating consumers on financial education and responsibility. Having worked in Data Facts’ Nashville office since 2007 as an account executive, Hamby realized the need for financial education that was informative, yet easy to understand and attainable. Partnering with both Junior Achievement, and Tennessee Jump$tart, in providing financial education, opened her eyes to the tremendous benefits in providing financial literacy and resources for consumers to aid in making better financial decisions.
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