November 14, 2006

Counter Bad Credit with a Secured Credit Card

Any quest to fix bad credit and raise a credit score would be remiss without the inclusion of at least three active positive tradelines working in your favor.  Some examples of active tradelines are a mortgage, credit card, or installment loan – all must be open and reporting each month to Equifax, Experian, and TransUnion to provide positive FICO oomph.  If a credit report is lacking at least three active tradelines, then somehow they’ll need to be added.  The problem of course, is that applying for new credit, at a time when a credit score has been clobbered by bad credit, may seem daunting, if not altogether hopeless – it feels as though one must already have good credit to get new credit.  Take courage, dear readers, there’s no need to feel this way. The Broken Credit Blog has a solution to this bad credit dilemma and that be in the form of secured credit cards.  Let’s take a closer look at how secured credit cards can help to counter the effects of bad credit.

Investorwords.com defines ‘secured credit card’ as:

A credit card linked to a savings account. The funds contained in the account may be claimed by the company issuing the card in the event that the holder fails to make the necessary payments. This arrangement allows the issuer to take on riskier credit card applicants.

If you have a bank account, then there is a good chance that your bank offers secured credit cards.  A secured credit card can typically be opened with a deposit as small as $200.00 and as much as $15,000.00.  Your credit line is usually equal to your deposit amount.  Remember that you want to have three active positive tradelines, so if you have two other accounts already opened and in existence, then you will only need to open one secured credit card.  Conversely, if you presently have no tradelines then you will need to open three secured credit cards.  Partition your available deposit money accordingly as needed to open the necessary number of secured credit cards.

It is important to ask whether or not your secured credit card reports to each of the three credit bureaus on a monthly basis.  If a prospective card does not report to the credit bureaus, then avoid applying for that card.  Also, keep in mind that the purpose of the secured credit card is to improve your credit score.  DO NOT keep a balance greater than 25% of the secured cards limit.  Better yet, get in the habit of paying the card off entirely each month.  You will be amazed at the amount of improvement the addition of a few secured credit cards can have on a credit score – even with a small credit limit of $300 each – in just a few months time.

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