Once you’ve finished settling your debts, you’ll probably want to get started repairing your credit as soon as possible. But, repairing your credit likely means you have to add some positive information to your credit report. You may not be able to get approved for a regular credit card and so, a secured credit card may be your only option. There are good things and bad things about secured credit cards. Knowing the whole story keeps you from being surprised.
Perhaps the biggest drawback of a secured credit card is that you must have a security deposit to get approved. The security deposit isn’t a non-refundable fee that’s required to get the credit card. In fact, you can get your security deposit returned as long as you don’t default on the credit card payments. Coming up with the security deposit may be the hardest part of all.
Your credit limit is usually equivalent to the security deposit. If you only put down $100 or $200, you’ll probably have a paltry credit limit to work with. Making a bigger security deposit likely gives you a bigger credit limit. Some secured credit cards let you make a deposit up to $5,000. You may not have that much money, but you should know that it’s a possibility. The best time probably to save up for your security deposit is right after you’ve finished settling your debts. At that time, you’re usually used to setting aside money for your settlements. You could keep saving up that money for just a few more months and you’ll then have a good deposit to make.
There’s an upside to securing your credit limit with a security deposit – you get to decide your credit limit. If you want a larger credit limit, you just have to make a larger security deposit. Some credit card issuers let you increase your credit limit with an extra deposit. You might have to wait several months for an increase if you wait for the credit card issuer to decide you’re ready for a bigger limit.
You may have to pay extra fees and higher interest with a secured credit card that you typically wouldn’t pay with a regular credit card. However, these fees shouldn’t be significantly more than other credit cards. While there are some secured credit cards that prey on consumers with bad credit cards, there are a few good ones on the market. Shop around and compare the fees and interest rate of each.
Of course, the best thing about a secured credit card is that your debt settlement history likely doesn’t count against you like it does with other credit cards. You could use the credit card to begin demonstrating a positive payment history and then hopefully use it as a stepping stone to better credit card offers. A secured credit card could give you the second-chance other credit cards wouldn’t usually allow you to have.
A secured credit card isn’t forever. Many of them will convert to an unsecured credit card after 12 to 18 months of on-time payment history. If you end up with a card that doesn’t convert, you still may be able to qualify for a regular credit card. Just make an application and see if you’re approved.