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Secured Charge cards: A Great Way to Rebuild Credit
Rebuilding credit after bankruptcy, or after a major financial implosion, needs time to work and energy. Nevertheless there is merit to using a personal bankruptcy like a financial black hole, that you refuse to spend the money for credit game any more and simply never re-enter the loan system after bankruptcy, for most people that is not a choice.
One method to improve credit quickly is to use secured credit cards for day to day activities, then repay the cards in full each month. This quickly establishes a payment history, while keeping debt load and payments under control. Additionally, these cards are obtained quickly having a minimum of qualification and hassle.
Secured charge cards have to be distinguished from prepaid credit cards. Prepaid cards are cards which are packed with money, then carried and used as a conventional credit card until the money runs out. When that happens, the card must be recharged, just like a battery. These cards are issued within the name brands, such as Visa and MasterCard, and there is no method to tell a prepaid credit card from the regular credit card with no trained eye. The issue with prepaid cards is the fact that their use and payments aren't reported to credit bureaus.
For people in black hole mode buying on the internet, this really is great. For individuals attempting to rebuild their credit, something better must be used.
Enter secured cards. With secured cards, money is deposited right into a savings account and credit is drawn against that deposit. The card me is secured against the deposit amount. Depending upon the kind of card, the credit card might be either fully secured (a dollar for dollar advance from the deposit) or one involving some type of leverage (you deposit X and the bank agrees to provide you with X+ around the card). If you default or stop making payments, the financial institution has the to seize your deposit to satisfy the credit card balance. Observe that (1) the credit card issuer doesn't withdraw the money against the security balance unless you default and (2) you do not have access or obtain the security deposit back while the credit card is open.
The secured cards will vary to their benefit rates and terms. This is an area where it pays to do some research and homework. The interest rates vary from 0% to 23.99%. Generally, the low the eye rate, the larger the annual fee. In addition, the secured card provider could also charge a use or maintenance fee. Normally, most of the card issuers charge around 17% for that utilisation of the cards. To offset this, some of the issuers do offer interest (at or near market rates) around the security deposit.
The amount of the security deposit varies too; it normally starts in the $200 to $500 dollar range and may work upward after that. Also be aware that extra fees may be required as well as the security deposit, for example to pay off annual fees or maintenance fees.
Finally, remember that having a card issued, despite the fact that there is enough money for the security deposit, isn't automatic. Each bank has different terms and restrictions. Again, its smart to shop around and browse the small print.
