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How to Rebuild Credit with Secured Credit Cards

Wise Bread

Whether you're just coming out of a divorce, filed for bankruptcy recently, or are considering bankruptcy because of your poor credit history, you'll need a solid credit repair plan to help you get your finances back on track. Rebuilding credit can take several months or years, depending on how bad your track record is and how much debt you're carrying. The good news is you can rebuild your credit with a secured credit card. Unlike prepaid and debit cards, a secured credit card is reported to the credit bureaus just like your typical credit card and gives you a chance to improve activities on a fresh new line of credit.

Use these tips to rebuild credit with secured credit cards:

1. Analyze your budget. Secured credit cards will require a refundable security deposit to establish your credit line. This can be anywhere from $250 to $5,000 or more, depending on the credit card issuer. You'll need to take a close look at your personal budget to determine what type of deposit you can, and are willing, to make. Think about how much of an impact you need this credit line to have for your credit repair project. If you have a very low credit score and have had a poor credit history for a few years, you may benefit from a secured credit card with a higher credit line.

2. Comparison shop. You'll find a number of credit card websites that outline current rates, special offers, and key benefits of certain secured credit cards over others. Take some time to look for unbiased reviews of different secured credit cards and a closer look at the terms and fee requirements of each. Some of the key things to look for when comparing different cards: annual fees, application fees, security deposit requirements, APR, and credit line increase options.

3. Talk to a credit union. Many credit unions offer low-interest secured credit cards and can also be a valuable resource for anyone looking to rebuild their credit. Set up an appointment with a credit union in your area to find out what their current secured credit card rates and terms are, and what options you have for credit repair.

4. Pay off current debts as quickly as possible. If you really want to see a good increase in your credit score after using your secured credit card, you need to focus on paying down as much of your existing debts as possible. Carrying less debt can improve your credit score significantly and keeping that fresh new line of credit active through the secured credit card will have more impact.

5. Keep track of your purchases. The goal of having a secured credit card is to show creditors that you can be responsible with credit. You'll need to keep track of the purchases you make with this card so you can pay off the balance in full by the end of the month. Avoid the temptation to use the secured credit card like a regular credit card where you end up charging extra purchases in hopes of just 'paying it off next month'. Remember that you are still paying fees and have paid a deposit to have access to this credit line-use it wisely and make sensible purchasing decisions.

6. Always make more than the minimum payment. If you realistically can't afford to pay the full balance on your secured credit card by the end of the month, make sure you're making more than the minimum payment. You want to pay that balance down as quickly as possible to tell creditors that you are being responsible with your credit line and can handle making larger purchases without overextending yourself. Don't wait for the due date to make those payments either. Schedule the payment to post or just make the payment one to two weeks in advance when possible.

7. Don't miss a payment. Keep good track of the credit card statement dates and due dates so you never end up missing a payment. Missing a payment on a secured credit card can show up on your credit report and do some damage to your credit score. When you're in the process of repairing your credit, you need to be even more disciplined about establishing a solid payment history.

Click here for more secured credit card tips and additional articles from Wise Bread columnist Sabah Karimi.

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