CHRIS & COTY'S MONEY TIPS

Sometimes called BAD CREDIT CREDIT CARDS

What is a secured credit card?

A secured credit card is where you pay a bank a specified amount of money, usually $300 to $500 dollars and receive a credit card with that limit on it. You use the credit card in exactly the same way as any other credit card and make regular monthly payments to pay off the balance. No one but you and the company that issues the card knows it is a secured card.

Follow up:

There is no risk to the bank, because you are basically using your own money. But if you don't pay the bill, they already have your deposit. Many banks will even pay you interest on the initial amount you deposited, minus any charges you have made.

How this helps you build credit:

This is a great way for people with bad credit to build up their good credit again.

First, there is no risk for the bank so there should be no problem in them giving you a secured credit card.

Second, if you are making regular and consistent repayments on your card then you are building a positive credit history on your credit report that shows you consistently pay off your debts.

What to watch out for:

You must make your monthly payments without fail or you'll just be damaging your credit more. Also make sure you don't go over your limit. This can be easy to do because secured credit cards do not allow large credit limits.

Secured credit cards don't make a big financial impact on most people, because even if they have a high interest rate, the payments will be managable.

Many secured credit cards will be free to open. Some, however will have a start-up fee and an annual fee. It still may be worth it to open this type of account.

Building Good Credit

If you use your secured credit card often and make regular payments then you will build a thread of good credit history. After a year or so you can apply for other credit, such as a non-secured credit card. If you manage this properly too then you are well on the way to establishing good credit. But remember that you must avoid penalties for late payment.

As a Real Estate Broker, I've had clients over the years, ready to buy their first home, tell me how happy they were not to have credit cards, loans, or debt of any kind. While admirable, this is not a good thing when wanting to purchase a home !!

But that's a story for another time.

Chris Mullins