The paradox of improving or creating a credit score with the use of lines of credit may seem impossible. How are you going to prove your credit responsibility if no one will issue you a line of credit for doing just that? For people who find themselves in this situation, secured credit cards can be the answer. By using a secured credit card, an individual can demonstrate their ability to pay bills on time and use a card card responsibly.

Secured credit cards are issued when an applicant who has bad credit can offer some type of deposit or collateral for that amount of credit. This might be a deposit of a pre-arranged sum of money into a savings account, certificate of deposit, or money market. This way, the lender is covered if the applicant is not able to make payments, reducing the risk dramatically. This benefits the card holder by allowing them to create a credit history. Instead of spending cash, they can make purchases on the credit card and make responsible monthly payments to contribute to their overall credit score.

When using a secured line of credit, it is important for the cardholder to pay off the card in full every month. Just like any other card, interest will be charged on the outstanding balance of a secured credit card. The idea is to improve your credit score, not to acquire more debt. If an individual defaults on secured credit, the lender can then withdraw the defaulted amount from the security account to pay the debt. Though the debt will be paid, it may result in more damage to your credit rating. Be sure to discuss this with a potential secured credit lender to determine their policy on reporting to credit agencies.

When considering various lenders for a secured credit card, take the time to read the fine print and ask questions. Make sure you understand the interest rate that will be charged. You can expect for the rate on a secured card to be somewhat higher, but it should still be reasonable. Take every factor into account when making your decision. What are the grace periods, penalties for late payments, and any other fees that might be associated with the account.

Once you have obtained a secure credit card, diligently make payments on time and for the right amounts. After six months to a year of responsible credit use, many lenders will increase your limit, possibly even doubling it, which is great for your credit score. Continue to pay off the balance each month and your credit report will reflect the fact that you have more available credit that you are handling responsible.

Secured credit cards are a great way for people to get back on the right track. If you are serious about improving your credit or establishing a history, explore the possibility of a secured credit card. It is a great step toward teaching you to manage money more responsibly and showing lenders that you can.

CreditScoreQuick.com

This entry was posted on Tuesday, October 9th, 2007 at 1:45 am and is filed under free credit score reports. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.