A secured credit card could be a good option for rebuilding your credit after debt settlement. You’ll probably want at least one account on your credit report (maybe more) that doesn’t have a negative history. Traditional credit cards will probably deny your application because of your recent settlements; they don’t want to take a risk that you’ll settle on their accounts, too. So, a secured card may be your only option in the first few months after you finish settling your debts.
Know the security deposit.
Some secured credit cards have a minimum security deposit that you must make. This minimum could be as low as $100 or as high as $1,000. Make sure you know how much of a deposit you must make since this is the amount of money you have to come up with to get a secured credit card. If a particular secured card has a minimum deposit that’s too high for you, keep looking for one that’s more affordable.
Look for minimal fees.
Credit cards aimed at consumers with bad credit often have ridiculous fees. Fortunately, there are many secured credit cards that don’t price gauge vulnerable credit card applicants. An annual fee and application fee less than $100 are relatively reasonable. Anything above that is probably too much.
Interest rates shouldn’t be extremely high.
While interest rates on secured credit cards are higher than rates for people with great credit, rates should be reasonable. Anytime you’re shopping for a credit card, it’s a good idea to look at average credit card interest rates. The rate on the secured credit card you choose shouldn’t be too high above the average. If you pay your balance in full every month, the interest rate won’t matter because you’ll never be assessed a finance charge.
The card must report to the major credit bureau.
You may be able to compromise on fees or interest rate, but the secured credit card you ultimately choose must report to at least one of the major credit bureaus – Equifax, Experian, or TransUnion. Otherwise, using that credit card won’t do anything to improve your credit score.
Do you get interest on your deposit?
Some banks put your security deposit in an interest-bearing savings account and, of course, give you the interest when you close your credit card or convert to an unsecured card. Earning interest can be a good feature, but should not be a requirement for a secured credit card. The most important thing is probably getting approved for a low cost and having your credit card on your credit report.
Many secured credit cards give you the option of converting to an unsecured credit card as long as you make your payments on time every month for about 12 to 18 months. If your card hasn’t converted by that time, try applying for a regular credit card to see if you’re approved.
Depending on the credit card issuer, it’s possible to be denied for a secured credit card. Even though you’re making a security deposit against the balance, banks still have to assess whether they want to assess the risk. Probably avoid applying for a secured card with banks who you recently settled an account with since you may be denied.