By Drew Cassels
Submitted 2012-01-31 07:26:02
Number Of Times Read: 32
Quick Quiz: what is the single most important indicator banks use to judge you when you want a loan? Answer: Your credit score. Yes, that s how they measure your financial fitness. You can probably understand just how important your credit history is. After all, it tells a bank how you have been paying off your debts, how responsible you have been managing your money basically, your financial history and how likely you are to continue being responsible. Your past financial track record is vital to ensuring a number of financial benefits, including getting approved for your loan, and having access to the best interest rates. A bad score can mean that you pay hundreds of dollars – or even thousands of dollars – extra in interest over the course of a loan.
The good news is that an underachieving credit score does not have to be forever; you can improve your score by making certain strategic financial moves.
You have a number of options when it comes to rebuilding your credit score and with it, your financial reputation. One way to help boost your record is to make use of a secured credit card. This type of card can help you improve your credit reports, while at the same time providing less risk to the issuer. A secured credit card can help you re establish your financial reputation.
Understand that a secured card not the same as a prepaid card. Instead of operating like a credit card, a prepaid card is more like a debit card; you add money to it and then you can swipe it like a regular credit card to pay for whatever you are buying at the moment. Unfortunately, in many cases the bank or other card issuer will not make regular reports regarding payments on your prepaid card to credit bureaus. Because the central agencies aren’t receiving information about your payments, you are not likely to enjoy too much improvement to your credit history.
Applying for and getting a secured credit card, you will discover that it operates more like a traditional credit card. Rather than putting cash on the card, you use a security deposit to guarantee that you can afford to pay back what you borrow by spending on the card. The money used for your security deposit serves as collateral for your loan (indeed, when you pay with plastic, you are taking out an instant loan). You make payments on the credit card each month. If you default on those payments, the creditor is protected somewhat; your deposit will offset the delinquency.
Sometimes, a secured credit card is referred to as a guaranteed approval card. You are likely to have a small limit when you have a secured card (basically, the limit will depend on how much cash you paid up front) and your interest rate will be higher. However, if you have a poor credit score, the advantages can outweigh the disadvantages in many cases. You make your payments on time, responsibly, and your payment behavior is reported to credit bureaus so they can see immediately that you are being financially responsible.
As you make regular payments, your credit is likely to improve — as long as you fulfill your other financial obligations, of course. After a few months, when your score has improved enough, and you show that you are becoming more financially responsible, you can request that your secured credit card be converted to an unsecured card. The better you have handled your payments and the longer you have been using a secured card, the better your chance of success will be. Using an unsecured card instead of a secured card will help your credit score improve even further. After continuing to improve your credit score, you might be able to request a better interest rate, or ask for a higher credit limit.
You can apply for a number of different credit cards, and using them carefully can help you improve the track record available to the banks. So if your financial reputation has been sullied, it s never too late to rewrite your financial history. And a secured credit card can be one way to help you do it.
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Submitted 2012-01-31 07:26:02
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