People often ask me how they can improve their credit after bankruptcy or a history of unpaid bills. The first and most important thing is to always pay your bills on time. But the next best way is to establish a positive credit history using a secured credit card.
How it Works
A secured credit card is backed up by your money. Along with your application for the credit card, you also send a deposit which acts as the security for the loan in case you do not make your payments. The deposit amounts vary between $200 and $5,000 depending on the card company. The deposit makes lenders more willing to extend credit because they know if you do not pay, they get to keep the money. The amount of the deposit is typically equal to your credit limit.
Each month, as you use the card and make payments on your account, that information is reported to the credit bureaus. Your deposit remains in a savings, money market or CD account for a specified period of time while you build your credit history.
What to Look for
Using the Card
Where to Look
The first and best place to look for a secured credit card is at your own bank. If you trust them and have a good relationship them, start there. Otherwise, there are two websites that list secured cards: www.bankrate.com and www.creditcard.com. On the sites you can compare the rates and features of several different cards.
Remember to comparison shop. Not all offers will be created equal. While credit cards can be the quickest and easiest way to rebuild credit they are also the quickest and easiest way to ruin credit. If you run into trouble with your credit card or other bills, talk to a certified financial counselor. They have options to help you such as budgeting tools, debt management plans, debt consolidation alternatives and more.