Using credit cards to either build and establish credit or repair a bad credit score can be accomplished by both consumers and businesses as certain types of cards, like secured credit cards, have been able to help those in a less than perfect credit situation not only gain access to a credit card but begin the process of establishing proper financial habits so that either a business’s credit score will improve or a consumer in a bad credit position may be able to find relief from their situation. However, the way that secured credit cards help people will differ and it highly depends on the actions of a consumer as to whether these cards are helpful for establishing a good credit score or repairing bad credit.
Secured credit cards are usually sought out by bad credit borrowers due to the fact that they can be an asset when it comes to gaining access to some form of credit. While there are unsecured bad credit credit cards available to consumers, there are some that may come with a very high interest rate or could simply be unavailable to individuals and a certain bad credit position. Yet, no matter if a business is seeking out a secured credit card or if an individual consumer is getting one of these cards, collateral is required by the lender so that if a consumer defaults or improperly uses their credit card to an extent where they cannot repay what they owe, funding backing this secured card will be withdrawn from an account that the cardholder set up and used to recoup any losses the bank would potentially sustain.
Depositing money into a bank account to acquire a secured credit card is only the beginning, though, as proper use of a secured card is helpful in not only repairing bad a credit score or establishing a credit score when little credit history is in place, but since the consumer stands to lose money if they fail to properly adhere to strict credit practices, they will typically be in a position where even the most undisciplined consumer will begin implementing smarter financial practices. While a secured credit card is not a guarantee when it comes to developing these practices, smart financial habits are vital as, again, a secured credit card will either allow a consumer to make purchases and repay them in the hopes of seeing their credit score increase over time or they will simply lose money that they deposited into a bank account to secure the card.
However, when consumers are initially researching secured credit card options, care must be taken so that they will find not only a card that is affordable and beneficial for their particular goals, like establishing credit or bad credit repair, but also they need to work with a lender who will report their credit activity to the major credit bureaus. The FTC warns consumers against scams as some credit card lenders offering secured credit cards may charge excessive fees or leave out information that is vital when a consumer is calculating the overall costs on a particular card for establishing or repairing their credit. According to the FTC, scams usually involve offers of easy credit or some so-called credit repair companies may offer cards, but these may not be in a consumer’s best interest.
Since many major financial institutions and banks can offer secured credit cards, these places are a good starting point, but reputable community banks or credit unions may also have some secured credit card offers, which can be helpful and affordable for consumers. However, if a consumer chooses a secured credit card to repair their personal credit or the credit score of their business, strict research must be done to find the best card, a deposit must be made, and consumers must then implement smart financial practices so that they can continue to build a more positive credit history until a time where other sources of unsecured credit that may be even more helpful, become available.