Don't Fall For A Scheme When Trying To Rebuild Your Credit History
Mike Cotter
For people with weak or bad credit, getting approved for a credit card can be difficult, if not impossible. There are several credit card options that are aimed specifically at people who have bad credit and are trying to rebuild or repair it. There are also, unfortunately, a lot of schemes to take advantage of the desperation to get a credit card when no one else will issue one. How do you tell which options are valid ones and which are just taking advantage of a bad situation? Let's take a look at some the things that you should be wary of below.
Catalog Clubs Disguised As "Credit Cards" For People With Bad Credit
Some supposed credit cards offer to help people rebuild bad credit by establishing credit cards to be used only with their catalogs. Products in the catalogs are often overpriced, and you can't use the "credit card" anywhere else. The catalog companies may make reports to credit bureaus with your balance and payment history. This will help to establish new good credit, but it can be a very expensive way to acquire goods and improve your creditscores.
Prepaid "Credit Cards" To Help People Repair Bad Credit.
Technically, prepaid credit cards are not credit cards, though they may bear a Visa or MasterCard logo. They're more like a debit card, without a bank account. The purchaser "loads" the card with a deposit, usually with a minimum of $20 and a maximum of $500 to $5000. When you use the credit card to make a purchase, the amount of the purchase is deducted from your balance. When the balance reaches $0, you can't use the card until it is reloaded.
Generally, you can reload the card at any time, though there is usually an upper limit to the amount of cash that the card can carry at any one time.
Since you are pre-paying on the card, you are not borrowing money from a company and therefore are not creating a credit history.
Secured Credit Card - The Best Option For People With Bad Credit.
A secured credit card is one of the best options for people who have been declined for a standard credit card. Your approval for credit is contingent upon a deposit in the credit card company's bank. Your initial credit limit is usually the amount of your deposit. In effect, your deposit is security for the credit card limit. As you make payments on time, the credit card company may increase your credit limit to 150% or 200% of your security deposit.
This is unlike a prepaid card, where you are actually spending your own money.When you make a purchase, with a secured credit card you are buying on credit and reestablishing your credit history. The security deposit is only taken if you default on payments. Be sure to check around for the best interest rates, as they can vary widely.
You will be faced with many options as you are trying to rebuild your credit history, and unfortunately, many people have found ways to take advantage of those people who are tying to turn over a new credit "leaf." Don't let that happen to you Thoroughly research each of your options before making a decision.
About the author: Mike Cotter has been a professional lender for over 30 years. He began his career in the commercial banking industry in 1972 and steadily progressed to become Vice President of Retail Banking with a major Denver bank. In 1982 he opened his own commercial bank and served as President and CEO for 10 years. In 1992 he left commercial banking for the mortgage banking field. RockyMountainMortg ageRates.com
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