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How To Improve Credit History - Can Secured Credit Cards Really Rebuild Credit? The Answer May Surprise You ...

Updated on December 4, 2013
Trying to make since of your finances before it's too late. Financial stresses are responsible for most divorces. Make budgeting a family effort.
Trying to make since of your finances before it's too late. Financial stresses are responsible for most divorces. Make budgeting a family effort.

There are more and more people affected by bad credit. No more are the days that only irresponsible people have bad or poor credit. We are all affected and have to rethink the way we view our finances.

No matter the amount of money we make a budget is in order. Spending money without knowing how it can affect you in the future is careless and immature. If you had a business you would keep books and balance all of your incoming and outgoing income. If you didn't you would go bankrupt.

This is what is happening in millions of households every day. It's time to treat your finances like a business. If you don't, rebuilding your credit will only be temporary because you would be destined to repeat your bad habits.

There are many reasons we fall behind and ruin our credit. Job loss and emergencies, such as medical expenses and college tuition leaves us depleted and never able to catch up. Whatever reason for your bad credit, learning how to rebuild it will take time and discipline.

Many people think there is a magic solution to rebuilding bad credit, rebuilding your credit starts with you first learning how to spend and control your household finances. I have to be blunt and tell you that no secure credit card will do that for you, especially if you still haven't learned how to budget and spend responsibly.

For instance, spending $2,000 on gifts when you only bring in $2,500 a month; then struggling for almost a year to catch up, just to do it again. It's a vicious cycle and irresponsible.

Most credit cards are unsecured; you are using a specific amount (credit) and paying interest on the money spent that you didn't earn. Secured cards require a security deposit from the cardholder, which acts as cash collateral against you defaulting on your payments.

The sooner you learn how to budget the more money you will keep in and for your future.
The sooner you learn how to budget the more money you will keep in and for your future.

Can Secure Credit Cards Rebuild Your Credit?

Unsecured credit card have a specific amount of money available to you because of your credit rating. You will have fees and interest charges. Reported to 3 Credit Bureaus.

Debit Cards are similar to secure cards except that they are not reported to the credit bureaus.

Secured cards - Using a secured card to build or rebuild credit is a great move because your payment history is reported to the 3 credit bureaus. This is great for those who have never had credit and want to establish it and for those looking to improve bad credit. That being said, not paying on time will also affect your credit rating.

  • Security Deposit $200 or $500 cash as collateral.
  • Spending limit is equal to your security deposit.
  • Reported to Credit Bureaus.

The purpose of using a secured card to build or rebuild your credit is to demonstrate that you can spend responsibly and on time. The longer you use your card and pay on time the better your payment history looks. The first time you are late, you not only get a late fee but your time to rebuild your credit begins again.

How to Use a Secure Credit Card

The best way to start rebuilding or building your credit you must use your secure credit card properly. You cannot hold on to your card and not use it. You need a great repayment and spending history to get a good report. Not spending your total amount shows your practices responsible spending.

  • Spend only 50% of your balance.
  • Pay entire charges every month.
  • Use every month to build history.
  • Pay on time.

Use your card for a bi-monthly meal, gas or regular groceries and nothing more. You want to have a regular plan that you can remember and stick to. If you must spend more, it is imperative to pay it off by the end of the month.

Using a secured card to help rebuild your credit can be a trap if not used properly. If you have not changed the way you save, spend and pay your bills you can easily slip into more expenses on top of the ones you have; with accruing interest.

  • annual membership fees
  • processing fees
  • deposit fees
  • higher interest rates fees
  • late payment fees
  • over limit fees
  • cash advance fees

You will first have to learn budgeting for this system to work or you could go deeper in to financial ruin especially if you have poor budgeting habits or an emotional buyer.

 The holidays are the hardest times to stay on target, teaching your family the noncommercial aspect of an holiday can leave your finances intact. Happy Kwanzaa!
The holidays are the hardest times to stay on target, teaching your family the noncommercial aspect of an holiday can leave your finances intact. Happy Kwanzaa!
A moment of pleasure; years of pain.
A moment of pleasure; years of pain.

Responsible Spending

Responsible spending is paying for regular items you need day to day with money already allocated for that purpose. Never buy any item you don't need the card you are using to rebuild your bad credit. The banks do look.

  • Weekly groceries
  • Weekly gas
  • Regular bill payments

Can secured credit cards rebuild credit? Sure, it you have gotten yourself the education you need to run your finances responsibly.

The Best Way to Rebuild Bad Credit for Good

The best way to rebuild your credit is to budget and take aggressive steps toward rebuilding your life from daily spending, budgeting and reducing your monthly expenses. Budgeting is viewed the same as a diet. This is not a punishment but a lifestyle change. Don't short change your life from a lack of discipline.

  • Make sure all of your current debt is correct with the credit bureau.
  • Have all paid off debt reported to credit bureaus.
  • Make a budget and stick to it.
  • Pay off high interest items sooner.
  • Down grade when possible.

I hope you understand that I believe that getting a secured card in the hopes of rebuilding your credit can be damaging to you if you have not made the necessary changes in your life before hand. You will need discipline to avoid adding onto your financial woes.

Having good credit can be only a few years away. Paying on time for a total of 2 years will allow you to get loans and attain credit cards again. The longer you practice great spending and repayment habits the lower your interest will become. Good luck to you and your future good credit.


Budgeting Resources

http://www.mymoney.gov/Pages/default.aspx

Free Personal Budget Plan Template you can download from Microsoft.

http://money.howstuffworks.com/personal-finance/budgeting/personal-budget.htm

http://www.practicalmoneyskills.com/personalfinance/savingspending/budgeting/


Budgeting for Children

http://www.mymoney.gov/Pages/for-youth.aspx

http://www.dfi.wa.gov/financial-education/resources-games.htm

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