Husband and I got a secured credit card to improve credit rating. We were told to charge $100 and then make minimum monthly payments on that. We do not wish to pay 21% interest charges. Can we charge $100 each month and pay that amount off each month and still get a better credit rating?
Thank you for your question about secured credit card and improving your credit.
Before I explain some techniques to deal with your credit problem, my first recommendation is to avoid the lender who gave you such poor financial advice. On the one hand, you need to take out a credit card or a loan to establish your credit history and this will cost you money in annual fees and/or financial costs; however, you don’t have to overpay to build up credit.
Establishing credit with a secured credit card is a common tactic when a person wants to build a credit score. In general, you cannot obtain a loan or credit if you do not have a credit history. A lender judges their lending policy on your financial ability to repay a loan, and your willingness to repay. That means that the creditor analyzes your past payment history, as reported on your credit report, and reflected by your credit score.
Before you take a secured credit card learn about:
A secured card is one tool that can help you improve your credit score. The lender lets you take out a credit line, based on a deposit that you leave with him as collateral. In order to build your credit score you will need to follow these important rules:
When shopping for a secured credit card shop, look at these features:
- Minimum payment
- Payment date and the last date before you are charged penalty fees, including late payment and returned payment fees.
Here are some examples of rates and fees for two secured cards, as advertised on Wells Fargo and Bank of America, and Capital One’s Web sites on August 2012. Read all the fine print for all the terms and conditions.
|Well Fargo||Bank of America||Capital One|
|Credit Line (based on equivalent deposit*)||$300-$10,000||$300-$4,900||$200-300|
|Interest Rates - Purchases (Variable tied to Prime Rate)||18.99%||20.24%||22.9%|
|* The deposit might be less than your credit line, depending on your credit worthiness.|
If you are trying to establish credit, then a secured credit card is a good place to start. Other methods include getting a co-signer, taking a small installment loan, or a retail card.
It takes time to build up your credit score. I recommend that in the beginning you be careful with your secured credit card and follow these tips: