Have you been struggling with bad credit – or even no credit? Well, you are not alone. In fact, the reality of the matter is that many of us experience prolonged periods of bad credit and sometimes it can seem as if there is not an end in sight. To add fuel to this fire, perhaps you have made several attempts to take out some additional credit, yet have been declined as you have been told time and time again that your credit score just doesn’t cut it.
If this scenario matches how you may currently be feeling – perhaps you have already tried to find solutions to the growing debt levels you have been faced with. The good news is there are actually various solutions that can help you improve your credit score and even work towards moving closer to being in a position where you can access more credit when you need it.
Perhaps one of these solutions you have heard of is a secured credit card? Well, this type of card can be a very effective method of allowing you to rebuild your credit. On top of helping you to re-establish your credit, this type of card is also one of the few cards that is more obtainable for individuals with poor credit.
The unfortunate reality is that loan providers will not typically want to risk lending credit to borrowers with bad credit, as there is less certainty as to whether the borrower will be able to pay it back. However, a secured credit card offers certain protections against this type of scenario, as a secured credit card is linked to a deposit the borrower initially makes to serve as a ‘backup’ payment, should the borrower default on their loan.
At this point, a secured credit card might be starting to sound like a pretty good option for you, and you haven’t even heard the half of it. In fact, there are several reasons why a secured credit card may be your saving grace at the very moment you and your finances need it the most.
Here are 3 reasons how a secured credit card can help you rebuild your credit
1) A Low Limit Can Help Protect You From More Debt
As secured cards are typically offered with balances no higher than $2000, with a limit this low, the idea is that you can pay back this credit more effectively and you can’t add to your debts so significantly that you will risk damaging your credit score more. Often time’s credit limits can be too high for people to be able to keep up with the monthly payments.
In turn, these high credit balances only raise your debt and growing interest charges make it very challenging to pay down your debts at all. Instead, with a secured card you can perhaps experience the best of both worlds, by having access to some credit, yet not too much. As a result, you are less likely to let your credit levels get too out of hand.
2) Proper Credit Management Can Help You Improve your Payment History
A secured credit card can be a method of getting back on track with your credit re-payment schedule. It is common for bad credit to be a result of missed or late credit card payments, however a secured card offers borrowers the opportunity to work at paying back their credit card with perhaps more ease than before – as again this lower limit is more manageable.
Moreover, since your payment history is responsible for a large portion of your credit score, then as you improve your ability to make consistent payments, on time and each month this can help to ensure your credit score remains more stable.
3) You Can Start Building Your Credit Score from Zero
One additional way that using a secured credit card can help you rebuild your credit, is to actually help you build it from scratch. There are a variety of reasons, why individuals may find themselves without a credit score – or a credit history. Bankruptcy, divorce, and being a ‘credit newcomer’ are all examples of scenarios, where taking out credit can pose a challenge as this will obviously mean you will have a bad credit score due to lacking in credit history length.
Minus a credit history, you will have difficult accessing future credit and since a longer payment history reflects a better credit score, then the sooner you begin building credit, the better your credit score will be.
All in all, what these three credit card areas have in common is that they all reflect best practices for secured credit cards, as well as any credit card for that matter. Ultimately, if you keep on track with these credit card management strategies, the more you can get out of your credit card use – and the more you can improve your own credit score too.
A bonus tip to keep in mind as you approach the management of your secured credit card, is that these cards commonly come with a higher interest rate. Therefore, this only serves as greater reinforcement for continuing to make on time payments, paying off your balance each and every month, if possible – otherwise aiming to keep your balance as low as you can.
Since secured cards typically only enable you to have a lower limit to begin with, this can set you up for success right from the get-go. However, it is still up to you to be a responsible borrower and always be thinking about how your credit transactions affect your credit score and the overall stability of your finances.
In the end, the last thing you want to come out of this experience is more debt. If properly maintained, a secured credit card can help you regain your financial footing and help nudge your credit score higher and higher as you go along.
