It takes money and credit to build good credit. If you have a bad credit score or no credit history at all, a secured credit maybe the answer for you. Payment history on your debts accounts for 35% of your total credit score. So if you want to build credit, you need to show and build a consistent payment history on your debts.
Whether you are just starting out in the world of credit cards or have had them for years, a secured line of credit is an excellent way to build a strong foundation. Many experts advocate the use of secured credit cards because they can easily be approved by a bank or credit union and can teach new credit users how to properly manage and responsibly use their credit cards.
Compared to a regular credit card that you pay off on a monthly basis, a secured credit card has collateral behind it. This collateral will usually come in the form of a cash deposit from you to the lender that is giving you the card. Giving a cash deposit upfront allows people with less than perfect a high chance of getting approved.
In order to get started, first find a bank or credit union that offers a secured credit card. Once you have found your lender, you will place your collateral as a deposit with the institution. Usually, the amount that you provide as the deposit will become the spending limit attached to the card. It’s common for many secured credit cards to have deposits as low as $200!.
A secured credit card can be used in stores, gas stations, and other places just as a normal credit card would. The bank or credit union will also keep the deposit securely for you unless you default or become delinquent on your payments. Before signing up for a secured credit card, be sure to ask the lender if they report your payment history to any of the 3 big credit bureaus.
Building credit with a low limit on a secured credit card can be a great way to start. By paying off your balance on a consistent and timely basis, you are showing potential lenders your capability to repay your debts on time. It’s also important to keep note that credit utilization also applies to a secured credit card, so it’s best to keep your credit utilization at 30% or lower if possible.
If you are struggling to build credit quickly, know that using a secured credit card will take some time to factor into your credit report positively. Be sure to be vigilant, consistent, and responsible when it comes to rebuilding your credit with a secured credit card.
Overall, a secured credit card is a great stepping stone for young people or people with bad credit to build or rebuild credit. With responsible use and consistent payments, you are guaranteed to see your credit score increase and your financial options widen with a better credit score.
Once you have established strong credit with consistent payment history, you might want to advance to obtaining real forms of credit (which are unsecured credit cards). You can use the good credit habits you learned from your secured credit card on your new credit card.
A car loan is also another great way to build credit. Loans can affect every aspect of your credit score, thus leading to a quick way to a higher score, especially if you are in need of a reliable car.
All in all, if you have bad credit and are trying to finance a car sale, you need to find a subprime lender who can work within your budget and location. CrediReady offers one of the largest databases that connects dealerships, lenders, and buyers in all credit situations.
Take a few moments to fill out our free and confidential loan search form online and we will match you with a dealership in your local area that can meet your auto financing needs.