Build Your Credit Score

Use a Secured Credit Card

A secured credit card is very useful for young people who are trying to establish their credit for the first time. It also can benefit people who have had a difficult time because of a job loss, bankruptcy, foreclosure or similar financial disaster that has caused them to have their financial scoreruined and their cards canceled. Many people with no credit or bad credit fear that they will never be able to get it rebuilt once again. However, a secured card will help people get back on their feet, a little at a time.

Credit Cards and CashCredit:

Qualifying for a Secured Card

Most major banks offer several ways to help people build their credit. The decision about which type of card is right for you is based on your consumer credit report, as well as other personal information such as your employment history and your income.

Secured Cards

Secured credit cards are the type often recommended by non-profit agencies, such as the Consumer Credit Counseling Service, as a way to help young people begin to establish credit in their own name. In fact, our local branch of the Consumer Counseling Service sends a representative to our local high school each spring to discuss the use and misuse of credit cards with our graduating high school seniors. Although they do not mention any particular bank card in their presentation, they do suggest that students consider establishing credit in their own name by starting with a secured card.

In addition to helping young people begin to build their credit for the first time, secured cards are also good for people who have damaged their credit in the past, and they are now trying to rebuild it.

With many of the banks, they require that you make a $200 or more minimum security deposit. Sometimes the cards also have an annual fee that can be $35 or more. It may be waived the first year.  You will also pay interest, which can be high, on any balance transfers or credit card checks. In addition, you will be charged an immediate Balance Transfer Fee or Cash Advance Fee if you use the card for those purposes.  If you fail to make the minimum payments, your interest rate can be increased to as much as 29.49%. Do not apply for a secured card if you do not believe you will be able to keep up with the payments. Instead of helping you improve your financial score, you could end up making it worse.

The Consumer Counseling Service recommends that you make sure that any secured card you use will report monthly to the credit reporting agencies, as this is the only way that you will improve your score with them. They also suggest that you watch out for large fees, because they can quickly use up the security deposit. When you get a secured card, ask how long it will take you to get your deposit back, and graduate to a regular credit card.

If you are struggling with your financial situation, you may also want to read a book that goes into more depth on the topic.  Here is a link to the best books on this subject from Amazon:

Quick link to Amazon books about repairing your credit.

Unsecured Cards

If your credit rating is low, but not so bad that you need to put down a deposit and get a secured credit card, many banks also provide more traditional credit cards. However, you are not going to get the best possible rates, because you either have not established your credit, or you have damaged it in the past. Interest rate ranges from 14.90% to 24.90%.   In addition, there may also be a variety of fees involved.

As with other cards, it is extremely important that you make all payments on time. If your purpose in getting a credit card is to build or rebuild your financial picture, you will do more harm than good if you are not responsible about making the payments.

Facts about Selecting a Card

As with any other business transaction, it is wise to shop around and compare the rates and fees on these cards to the rates and fees on other credit card offers you may receive. Be sure to read the fine print on any offers you receive, as well as the websites for the different companies, because interest rates are subject to change.

When comparing cards, there are other factors that you need to consider in addition to the interest rate on your credit card. You will want to know if there is a processing fee to set up the account, an annual fee, additional card fee (so another family member can be on your account), over limit fee, or any other fees. You will also want to know the consequences of making a late payment.

Once you have selected a card, it will help your credit rating if you make one or two small purchases on it each month. For example, you may want to occasionally use it to purchase a tank of gas. Then, you will want to pay off the full amount at the end of the month. You do not want to charge more than about 10% of the value of your limit at any one time. This will show that you are not maxing out your card. If you have online banking, you will want to set up a system of having the payments made consistently at the same time each month. If you make your payments on time, and use the card responsibly, you should see your credit rating improve significantly in a year or two.

If you are interested in learning more about handling your family's finances, you may also want to read these articles:

How to Decide if a Wedding Credit Card is Right for You

How to Get a Free Credit Report

Wise Use of Credit Cards

Financial Advice for College Students

Home Improvement Financing Ideas

Bank Failures and FDIC Insured Accounts

A Fabulous Book for People of All Ages

The Money Book for the Young, Fabulous & Broke
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(price as of May 18, 2015)
I have given this book to my own daughters and it has gone a long way towards helping them learn how to take care of themselves financially.