When your credit goes south, perhaps due to difficulty paying your loans on time or falling behind on credit cards, you may find that it takes much longer to improve your score than it does to hurt it. A poor credit history and low FICO score may disqualify you from traditional credit sources, but you may be able to heighten your credit score and reinstate a respectable credit history by applying for and using a secured credit card.
About
When you receive approval for a secured credit card, you must provide your credit card company with a monetary deposit that acts as collateral in case you default on your account payments. The money usually sits untouched in an account while you make payments on your credit card. If you incorporate responsible spending and payment habits on a secured credit card account, you can build your credit history in the same way that you can with an unsecured credit card. On the other hand, skipping or making late payments on the account could further harm your credit score and result in a loss of your credit card deposit.
Considerations
Before deciding which secured credit card is right for you, make certain that the credit card company you choose reports your payment history to all three of the major credit bureaus instead of just one or two. Future lenders may obtain your credit history from any one of these bureaus, rather than all three. If your secured credit card only reports to one bureau, your credit score and history could vary wildly between the three bureaus. Also, do not expect to obtain low interest rates and fees on your secured credit card. Most secured accounts integrate high annual percentage rates and excessive annual fees to maintain the account. To avoid falling victim to expensive interest rates, try not to sustain a revolving balance on your credit card and instead pay off your balance each billing cycle.
Expert Opinion
Justin Harelik, a bankruptcy adviser for Bankrate.com, suggests that secured credit cards can rebuild your credit quickly following a bankruptcy or series of other negative items on your credit history. He recommends requesting the highest possible credit limit on your card, while using very little of your credit line. This creates a lower debt-to-credit ratio, a factor that contributes to 30 percent of your credit score. As indicated by Harelik, responsible usage of your secured credit card should improve your credit score significantly within one to two years.
Timeline
Destructive credit histories are not indefinite. Within seven years, negative items on your credit history are expunged, hopefully replaced with a more positive and constructive credit history. Until these items fall of your report, they will become less and less damaging as more recent information becomes available on your secured credit card account payments.
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