As many consumers are well aware, it is not an easy task to build a credit record, much less try to rebuild a less-than-exemplary credit score. There are however a few legal and reasonably easy methods to accomplish this, and one of them is with a secured credit card. There are millions of Americans who are severely impacted by the current financial downturn, and many are seeking ways to put their personal budgets in a better light, especially within the scope of the credit reporting bureaus. Unemployment, slow job growth, and business down-sizing have contributed heavily to the state of the average comsumer’s financial security, as well as the damage done to their credit ratings in the process. Access to an adequate financial safety-net through affordably-priced credit has become collateral damage for many.
About Secured Credit Cards
There are numerous secured credit card options available to consumers in difficulty (Read: 7 Credit Cards Perfect for Those Suffering with Bad Credit). Secured credit cards are issued through a lending institution, and ‘secured’ by funds deposited in a savings account. Simply stated, for a small deposit of $200, a person can acquire a credit line for equal the amount deposited. Thus, this fully secured card is backed by the deposit as a form of security. In some cases, depending on a person’s credit score, the requested security deposit can sometimes be less than the amount of the credit line offered. In this procedure, if an individual defaults in their payment obligations, the lender then recovers the debt with the funds in the deposited account. As long as the secured credit card account is in open status, the funds in the security deposit cannot be withdrawn.
The Fees and Interest Rates
While there are certain fees of varying amounts required for opening these type of secured credit card accounts, it certainly pays to do some investigating to find the best of these rates. In addition, the same rule of thumb applies to shopping for the lowest interest rates available as well. The lowest annual percentage rates of interest (APRs), in a general form of survey, can fluctuate anywhere from 7.99% to 9.99%. Some lenders even charge no interest on purchases, but levy a monthly fee for this privilege. The consumer must also be aware of the rather hefty penalties for late payments, as high as 29.49% in some instances, as well as any yearly ‘maintenance’ costs associated with some accounts. The ‘average’ rate of interest charged on secured credit cards across the board is around 16.60%.
There are two up-sides to these secured credit card scenarios. While the interest rates can be low, and the fee structures varied, as long as timely repayment is kept up, a person is often given the opportunity to up-grade to an unsecured card rather than maintaining a balance on the account. Another benefit is that some lenders pay out annual interest on the security deposits, from .05% to 1%, and will return both the security plus interest when the account is closed in good standing. Also, the secured credit card seeker needs to know that some lenders require a deposit greater than the funds available as a credit line, sometimes as much as 1.5 times the credit limit. Other lenders subtract the annual fee from the credit line until it is fully paid down through monthly installments.
Re-building the Credit Scores
Naturally, the most important thing regarding the credit rebuilding process in the monthly payments – on time, and in full. The second imperative is making sure that this payment history is being reported to the three credit bureaus – Experian, Equifax, and TransUnion – so that the record of responsible financial behavior is being reported accurately and fairly, in order for the individual to receive the ‘credit’ that they deserve, and worked so hard for. Eventually, anywhere from 12-16 months, and after following proper repayment obligations, a consumer will have re-built their credit rating to a level where they may qualify for ‘unsecured’ credit card status, and on their way to improved financial security.