Using a Secured Credit Card to Rebuild Your Credit and Increase Your Credit Score
Secured Credit Card is a Good Way to Rebuild Your Credit
Last Updated: April 4, 2016
There is a way you can bounce back fast after a bankruptcy. You can carefully rebuild your credit by applying for and using secured credit cards. A secured credit card requires you to deposit money with the lender and your credit limit is equal to the deposit.
There are a lot of bad secured credit cards, so you want to make sure you do your homework first before getting one of these cards. Getting the right one and using it the right way, will go miles in the journey of rebuilding your credit and increasing your credit score.
A Secured Credit Card Should Have the Following:
- Have no application fee and a low annual fee.
- Convert to a regular, unsecured credit card after 12 to 18 months of on-time payments.
- Report activity to all three credit bureaus.
Report Balance to the Bureaus
Credit scores take into account the total amount of credit available to you and the current balance you have on your cards. They use this to calculate your debt ratios which is:
Current Total Balances (divided by) Current Total Credit Limits (equals) Debt Ratio.
If they are not able to do this calculation, they will just guess what the limit is and this is going to be your current credit card balance or 100 percent of your credit limit used. Remember in the credit scoring article, the scoring model likes to see 30 percent or less of your credit limit used.
Are They Reporting the Credit Line as Secured?
If you get a card which reports to the credit bureaus that it is a secured card, your credit score will also take a hit, even if you are paying on time. So make sure they are not reporting your line of credit this way. There are so many products being offered by banks, so we have done some of the homework for you by putting together a list of secured credit cards we recommend. We hope you find one that fits your needs and your budget.