If you’ve never established credit or if past financial troubles are still haunting you, and you need to rebuild your credit, using your own savings to do so is a simple route to follow.
One way to get started is with a secured credit card.
With this method, you deposit a set amount into an account that is held for security against your line of credit. The credit card issuer will not be concerned with your credit scores, because if you don’t pay, they’ll simply keep the money in your security account.
By using the card wisely you will demonstrate that you are once again a good credit risk. You should be careful never to use more than 30% of your line of credit, and should, of course, pay every statement when it arrives. As long as you make at least the minimum payment, carrying the balance is fine – but it might be expensive. These cards are known for high interest rates. Use the card as a convenience and as a credit building tool, and do your best to pay each statement in full when it arrives.
Before you go this route, shop around and compare offers. Each card will carry an annual fee and the interest rates vary. Also, some cards offer interest on the money you’ve deposited into the security account, while others do not.
In addition, be on the lookout for application fees, transaction fees, statement fees, etc. Because the CARD Act limited some sources of income, credit card issuers are looking for other ways to increase their profits.
Be wary of offers in the mail or in your email in-box, as these will probably carry the highest interest and fees. Instead, take the time for comparison shopping. Choose a card with reasonable rates and fees, and look for one that will pay you interest on the money in your security account.
Another means to accomplish this – and to establish a second form of credit – is to borrow against a CD in your own bank. This is a less expensive method – generally you’ll pay 2 or 3% over the amount being paid to you on the CD.
Since credit scoring models give “extra credit” for managing different kinds of debt, you might want to consider using both a secured credit card and a bank loan. Credit cards are considered revolving debt, while a loan is an installment debt.
CreditScoreQuick.com
