Using Secured Credit Cards to Repair Your Credit Rating

If you have a bad credit rating, secured credit cards may be an accessible loan option for you. Secured cards use collateral in order to extend a line of credit your way. This will be the fastest way for you to get a loan with bad credit. Once you have the loan, you can implement responsible borrowing to slowly increase your credit score.

Why Secure the Credit Card?

Unsecured loans are hard to be approved for, when you have bad credit. The lender will be looking for assurance you will not default on the loan. Since your history with credit cannot provide this assurance, the lender will want you to place collateral. With collateral, the lender simply extends a loan up to 100% of the value of the collateral. While it is possible to get a loan for more than the asset's value, this is more likely to happen with a good credit borrower. Once your asset is placed as collateral, you have given the lender reason to believe you will not default on the loan. If you default, the lender will seize the asset then liquidate it to recover any losses. 

Why Revolving Debt?

Installment loans are given in one lump sum. You then have to repay the sum with a monthly payment also called an installment. Revolving debt is unique. You decide when you want to spend the money, and you also decide how much you will pay back each month. This form of financing is very flexible. It is also easier to get a revolving loan than an installment loan if you have bad credit. Revolving loans have lower limits and higher interest rates, which makes them more favorable to the lender than installment loans. Since the lender has a greater chance at profit from the installment loan, the lender will be more likely to extend the loan to a bad credit borrower.

How do I Use the Card to Rebuild Credit?

Once you have secured your credit card, it is time to start using the credit to rebuild you own financial standing. Follow these simple steps to start repairing your credit rating today:

  • Use the card for daily expenses. Instead of making luxury purchases, which you will not likely pay off quickly, make day-to-day purchases with your credit card. 
  • Pay off your purchases immediately. Some people even opt for a same day transfer of the amount they spent direct to the card. For example, instead of paying for groceries with your checking account, pay with your credit card then transfer the funds immediately from your checking account to the card.
  • Never miss a payment. This is the most important rule to follow. Even if you cannot pay down a balance in a given month, ensure that you always make the minimum payment required to keep the debt in good standing.
  • Ask for a limit increase. After about six months of responsible borrowing, you can ask to have your credit limit increased. If your lender approves this, your credit score will take a bump in the positive direction.

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