MyCardBlog

This is a guest post from Tisha A. Kulak.

In today’s volatile economy, many people may find themselves struggling financially. If you have fallen on hard times and your credit is damaged because of it, you may have an uphill battle re-establishing good credit. If your credit worthiness has been compromised it is imperative to take steps to get it back on track for a successful financial future. That may be difficult as creditors and lenders will be less inclined to extend credit to you. What do you do to re-establish your credit? You can start by getting a secured credit card.

What is a secured credit card?

An unsecured credit card means that you are on record as the individual responsible for the debt incurred on that card. With a secured credit card you are required to make a deposit into a bank account that acts as a guarantor in the event you are unable to repay the debt. Your credit limit on a secured credit card is normally 50%-100% of the deposit you make. The minimum deposit is generally from $250-$500.

What are the advantages of secured credit?

• Poor payment habits are often the cause of damaged credit. By using this card responsibly and making timely payments you are taking steps to show future lenders that you are not a credit risk. Make sure your secured card reports to all three major credit bureaus so your payment history is available for future creditors to review.
• Since your credit limit is based on money you have deposited into an account, you will have a preset limit that cannot be exceeded. This is a good way to control your spending and keep it in check.
• Having a credit card is a necessary for some transactions. You need a credit card for hotels and car rentals. Although you may not qualify for an unsecured credit card, you are still able to make these transactions with your secured credit.

What are the fees associated with secured credit?

While there are usually fees incurred with all credit cards, be on the lookout for specific fees when applying for secured credit. These fees include application fees, processing fee, and annual fees. These sometimes “hidden” fees will be deducted from your available credit so be sure to read the fine print. You will want to shop around for interest rates as well. Just because you have poor credit shouldn’t mean you have to settle for the highest interest rate.

When can I transition to an unsecured card?
Although it doesn’t take very long to ruin your credit, re-establishing it can take a much longer time. The minimum amount of time before you see changes to your credit score will be a few months, but it may take up to two years before you are eligible for unsecured credit.

In the interim, use your secured credit card to develop good spending habits, set a budget you can afford and live with, and as a tool to show future lenders that you are indeed worthy of credit. It is indeed an uphill battle, but one you can not afford to lose.

Tisha Kulak is a writer for CreditorWeb.com, where she writes about secured credit cards, rewards programs and personal finance.