Having credit is a very important aspect of being financially secure, especially in today’s economy. People that have a good credit history and a high credit score have many more options available to them compared to people that don’t. In fact, having good credit can save a person a tremendous amount of money in interest fees and more.
However, life is tricky and sometimes situations beyond our control can take place. Sometimes a person’s credit can get damaged and then they have to look at various options for rebuilding it. It’s not easy and it’s not quick but it definitely is possible to rebuild credit and make it good again. So what options are available for such situations?
One of the most important factors that impacts credit history is making on-time payments. This is especially true when it comes to credit cards. So following that logic, if a person with bad credit can get a credit card and start making payments on time then over a period of time this will positively influence their credit history. However, the problem is if you have bad credit then getting a new credit card is difficult and sometimes impossible. Fortunately there are options. It might be difficult to get a traditional credit card but there is such a thing as a secured credit card that can solve this issue.
What is a secured credit card?
A secured credit card is a credit card issued by a bank that is not backed by the person’s credit history but by a deposit that a person makes before obtaining this card. Basically the bank would open a separate account in the person’s name and have them deposit cash into that account. The amount of the deposit is normally supposed to be at least $300. Once that is done, the bank issues a secured credit card that is backed by the cash that is held in the account. The credit line on the credit card is equal to the amount in that account. So if you deposit $500 when opening that card then you will have of credit spending limit of $500 on the card. Every time you spend money, that money is deducted from the cash in that account and every time you make a payment, that money is replenished.
It’s important to note that although this is a secured card, it does act as a regular credit card and when you make payments on time, the bank reports these payments to the credit bureaus the same way as it would with any other credit card. So this is a great way of starting to rebuild your credit and showing that you are able to make on-time payments and be responsible with your finances. And of course, over time this can significantly improve your credit score.