Many consumers turn to secured credit cards as a way to begin the process of rebuilding a bad credit score. Typically, consumers who may have a poor credit score might have no access to credit or the credit they may have access to may come with a high interest rate, which could obviously be problematic for some. Yet, secured credit cards have often been a way that not only bad credit borrowers could gain access to credit, but individuals who may have simply wanted to begin establishing a credit history have also used these types of cards as well.
While there are numerous financial institutions that can offer secured credit cards, the rates will obviously vary as many offers show between a 12% and 20%, or more, annual percentage rate will be required on these types of cards. Also, secured credit cards require collateral since, for bad credit borrowers, lenders are taking a risk by providing this line of credit. Usually, secured credit cards will only require that the cardholder deposit a sum of money into a bank account which will set the credit limit.
However, consumers are then required to make payments on their charges, as the bank account into which the deposit is made will not be used to pay off purchases. Essentially, a secured credit card will work similarly to an unsecured card, and it will require proper use and repayment habits on the part of the cardholder before any benefits are seen.
Yet, financial advisers often caution cardholders from acquiring a secured credit card if they have unpaid debt. While, some secured credit card lenders may not offer a bad credit borrower a secured credit card if unpaid debt remains on their credit history, there may still be access to credit for these individuals from lines of secured credit. However, acquiring more debt into a situation where a borrower already has debt which has caused their credit score to drop is rarely a good idea and many financial advisers often suggest that before cardholders began repairing their credit score with secured credit cards, they began paying off old debts.
While this may seem like common sense, some cardholders are simply in a hurry to begin repairing their credit and unpaid debts from old credit sources will make that quite difficult, as certain types of debts can remain on a consumer’s credit history for quite some time. There are repayment plans which may be used to help individuals in a bad credit situation erase debts which have caused trouble and their financial life, but before a secured credit card is used to repair one’s bad credit score, the cardholder must be on a firm financial ground in order to gain benefits from secured credit card use, and this typically is not and option when unpaid debts are still present.