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Will a secured credit card help me rebuild my credit score?

You may have experienced difficulty paying your bills on time due to circumstances that overwhelmed your finances. Receive guidance by clicking here for Tropical Financial Credit Union’s online tools for financial fitness. Sometimes, your situation is so challenging that the problems cannot be overcome.

Your credit score will take a big hit in the process. If you filed for personal bankruptcy, that mark will stay on your credit report for 10 years from the court order or adjudication date. A credit card or loan default can remain on your record for seven years. And a scheduled debt payment that’s 90 days or more late will also damage your credit score.

Financial institutions will issue cards to people with poor credit scores when a deposit secures the credit line. If you do not pay your bill, the payment will be deducted from the money on deposit. The card issuer has almost no default exposure because the credit line is no higher than the deposit amount.

Benefits of a secured credit card

A secured credit card can improve your credit score. Over time, you can become eligible for loans at lower rates, become eligible for car and other loans, qualify for a mortgage, and more.

How do you rebuild your credit history?

  • By using a secured credit card responsibly. You stay well within the credit limit and make payments on time. This behavior shows creditors that you have learned from your mistakes or have moved past the crises that damaged your finances.
  • By using a small percentage of the credit line. Lenders become more nervous the closer you get to your credit limit. By keeping what bankers call the “utilization ratio” low, you can make creditors more likely to report your activity in favorable terms to credit bureaus. Another benefit: Your monthly payments will be lower.
  • By promptly paying off the balance. Rather than carry expensive interest debt, you start fresh each month. You save money in the process and further demonstrate to lenders that you can act responsibly.
  • By managing your finances. You use your card for essential purposes, paying by debit card, cash, or check for most expenses. You have a budget and are sticking to it. Click here for financial tools from Tropical Financial that can help you identify and organize your income and expenses with expense-tracking and other financial tools.

Depending on how low your credit score fell, it can take years to rise from poor to fair to good. In numerical terms, that can be from the bottom score of 300 into the 670-739 range.

As you move up the ladder, good things can happen. The card issuer may return the deposit, turning your secured card into an unsecured one. You may start to receive card offers with better terms. You may also find that the rates on car and home loans are comparatively lower. That can make those purchases more affordable or create opportunities to refinance at a better rate.

What can you expect when applying for a secured credit card?

With a secured card, expect a higher rate than an unsecured card issued to someone with stellar credit, a lower credit line, few to no benefits such as airline miles or cash rebates, and an annual fee.

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