Using Secured Credit Card To Build Your Credit Score
If you have no credit or a negative credit history, it can be difficult to obtain an unsecured credit card. It is better that you try to apply for a secured credit card, which has similar benefits as an unsecured card. Secured credit card is a type of credit card secured by your deposit account. With a secured credit card, your credit limit matches the security deposit you provide. After good payments, credit card companies such as Capital One, Providian and Citibank may offer you unsecured Visa or Master credit cards. In fact, many people with credit card debt feel that secured credit cards are the best card option. With some knowledge about secured credit card, you can use it effectively to re-establish your credit history.
The information in your credit report constitutes your credit score . There are five elements in a credit score: Payment history, Amounts owed, Length of credit history, New credit and Types of credit used. Credit score help lenders decide who they will lend to. It also determines what interest rate they will charge you if approved.
Keeping a secured credit card under the length-of-credit-history component of your credit score has a disadvantage. You allow the card issuer to continue to hold your money under deposit. However, it’s not a wise move if you decide to close secured accounts in the short term just to raise your credit score. Make sure that you have the new card ready before even considering closing your secured card account.
It is a misconception that by not paying off the balance completely to allow the bank to make money will increase your credit score. Your credit report only displays the card payment and transaction history along with outstanding balances. It will not show how much the bank has profited from you.
It also doesn’t help if you pay off the balance you owe in full each month. Doing so does not show credit card companies that you can manage credit.
This is what you should do. When you purchase with your credit card, don’t exceed the limit on the card. If you do, you appear to be too dependent on the card. A better option will be to buy something and take a month or two to pay it back. This is a reasonable approach to building a credit history with your secured card.
Sometimes your secured-card provider doesn’t report payment histories on your card to the credit bureaus. So, you need to make sure that your card issuer reports your payment history by looking at your credit reports. You can request for a free credit report from each of the credit bureaus once a year.
You may submit a few applications to get multiple cards. However, every application that shows up on your credit report is treated as a credit inquiry. This will affect your credit score also. It is recommended that you stay away from owning multiple cards.
By all means, don’t miss any payment on a secured credit card. Doing so will taint your credit rating and this will often prevent you from getting credit in the future. You want to prove that you can pay on time. This will give you a positive mark on your credit score.
Secured credit card applications opens up opportunities for people, even students with a poor credit history or no credit history to have a credit card which might not otherwise be available. You will find secured credit card offers as an excellent way of establishing credit and to stay out of credit card debt as well.