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Posts Tagged ‘secured credit cards’

Q: What is the difference between a secured credit card and a prepaid debt card?

A: If you aren’t eligible for an unsecured credit card, you still have options for carrying plastic in your wallet. Secured credit cards and prepaid debit cards are fairly easy to get but both cards have their benefits and drawbacks. One card can help you build or repair your credit, while another makes it easier to carry cash when you don’t have access to a bank account. Both of these cards require you to pay for the balance on the card, however. Here’s a close look at the key differences between a secured credit card and prepaid debit card:

Pros and Cons of Secured Credit Cards

Secured credit cards can help you build up credit and also be used to teach young cardholders how to be responsible with their credit card use. You will need to pay for these cards with a security deposit which acts as your credit limit. As you make purchases and pay off your “debt”, you’ll start to build some credit history.

Some of the key benefits of having secured credit cards include:

• Gives you a chance to rebuild and repair your credit
• Appear and look like a regular credit card, so nobody will know that the line of credit you are using is actually your own money
• Limits your ability to spend money that you don’t have
• Option to increase your credit limit when you demonstrate responsibility with on-time payments
• Can be converted to an unsecured credit card when you certain eligibility requirements

Some of the drawbacks of secured credit cards include:

• Pay interest on your own money because your balance will be accumulating interest
• Not re-loadable, so your initial deposit will serve as your credit limit throughout the agreement
• May make you appear to have a credit dependency on your credit report
• Activation fees and annual fees may be applied
• Late payment charges can be fairly high

Pros and Cons of Prepaid Debit Cards

Prepaid debit cards work like regular debit cards, except there is no application involved. You simply load these cards with a certain amount of cash, much like a gift card. You won’t incur any type of interest charges and can even use it to withdraw cash from an ATM machine. However, you will still incur maintenance fees, ATM fees and other charges when using this type of card.

Some of the key benefits of using some prepaid credit cards may include:

• Convenient alternative to carrying cash, checks or other types of debit and credit cards
• No credit check required
• No existing bank account required, and you can purchase it at a store to make purchases immediately
• No overdraft charges to worry about

Some of the drawbacks of using some prepaid debit cards may include:

• Won’t help you build your credit history
• Can acquire fees every time you use the card
• Inactivity fees may apply

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Q: I previously filed for bankruptcy. What is a good credit card to help rebuild my credit?

A: The Orchard Bank secured MasterCard (actually issued by HSBC) has a lot of attractive features for those with bad credit or no credit who want to improve their credit rating.

• low annual fee: $35, which is waived the first year
• low variable purchase APR of 7.9%
• reports to the credit bureaus, to help you rebuild your credit rating
• a fast pre-screening process which doesn’t affect your credit; this 30-second pre-screening shows you what card you’re likely   to qualify for
• low $200 minimum deposit

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Q: My Wife Had a Premie Baby Almost 6 Years Ago and Couldn’t Work for Two Years. Even Though I Worked Two, and Sometimes Three Jobs, We Got Behind on Our Bills and Now Have a Lot of Stuff on Our Credit, Like Charge Offs and Hospital Bills. If We Got a Few Secured Cards and Pay Them Faithfully Will That Help Our Credit Scores? My Scores are About 490 to 510 Right Now.

A: I would not open a “few” secured credit cards, however, obtaining a single secured card and making on-time payments can definitely help you boost your credit scores. Paying consistently on a secured card will establish some positive payment history for you, which will help counter-balance (to a degree) some of the negative data that is currently in your credit files. Opening several cards will result in multiple inquiries and could further lower your credit scores. Before opening a secured credit card, just make sure the bank that issues the card does, in fact, report to the credit bureaus.

Other Credit-Boosting Steps
To get an even bigger boost to your credit rating, you should try to clean up some of the blemishes in your TransUnion, Equifax and Experian credit reports. If you can contact your previous creditors and offer then a small lump sum payment to settle your debts, in exchange for them removing the negative information on your credit reports, then that will enhance your credit rating. Only do this for recently delinquent accounts (i.e. those from the last two years). Also, only give up cash payments to those creditors who agree, in writing, to delete black marks from your credit. If they simply note the account as “Paid” but leave the old, negative information there, that won’t help your credit.

Improve Your Credit Without Taking On New Debt
You also mentioned that your car note is currently in good standing. That’s great, because at least you have one “traditional” form of credit in your credit file. A car loan is an “installment loan,” and the fact that you’re paying it on time is viewed positively in the credit scoring world. The other two forms of debt that get analyzed, from a credit scoring standpoint, are “revolving debt” (which is credit cards), and mortgage loans. The fact that you rent, and don’t own a home, doesn’t mean you can’t establish a good payment track record with those rental payments. Try using a service like Payment Reporting Builds Credit. Their website is http://www.PRBC.com. It allows you to document “non-traditional” forms of credit, like rental payments, child care costs, utilities – anything where you’re making regular monthly payments. The information gets tracked by PRBC and helps you build your credit history and show a potential lender or creditor that you’ve been paying various bills on time.

Pay Down Credit Cards and Pay Everything On Time
Also, just make it a priority to pay all your bills in a timely fashion. That’s the biggest factor in calculating your credit score. Lastly, if you do already have any standard credit cards (i.e. not secured cards), try to pay down those balances. A good target is to keep your credit card balances at 25% or less of your available credit, if possible. That too will increase your credit rating.

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