Credit Building Cards
Rebuilding & Establishing new credit is a vital part of our credit restoration process. One of the best ways to do this is via a Secured Credit Card.
A secured credit card looks and acts as a regular credit card except… you’ll be required to put down a security deposit (ranging from $300 – $2000). This security deposit amount is equal to your credit limit; it acts as a ‘security’ in the event you are not able to make your payments. Therefore, the amount of your security deposit will always remain the same; while the credit you have been extended on your secured credit card will fluctuate based on usage.
This is not a debit card; you are still being issued credit from a bank. Further; your spending activity is NOT reported to the credit bureaus with a debit card. Your spending activity IS reported to the credit bureaus with a secured credit card. Thus, your score can increase with positive payment history and usage; and can decrease with poor payment history and poor usage.
Best Practices for Success In Building Your Credit:
- Pay On Time! Better yet; pay off every month in full; it increases your score faster
- Only use between 5-30% of your approved amount. For example if you have put down $300; you only want to spend $15-$90 per month. KEEPING BALANCES LOW IS VERY IMPORTANT. Pay off before or on the due date. Before is best, however at the very least pay on time – no exceptions!
- Increase your security deposit if you can; this will increase your credit limit. This does not mean you need to increase your spending! Keeping balances low is very important; increasing your credit limit is just as important because it positively affects your utilization rate; which makes up 30% of your credit score.
- Try to select cards that give you the option of turning it into a Unsecured Credit Card after a certain amount of on-time payments. Let’s face it; interest rates are high on secured credit cards; being able to switch over to an unsecured card as soon as possible will save you a lot of money over time in interest fees.
(Note: If you have a recent bankruptcy, please stick with the first option above).