It is not uncommon to lack credit or have bad credit. Either way, pre-approved credit card offers tease you, promising and then denying you credit, ironically because you don’t have sufficient credit. You are in a catch-22, because a good credit rating is often obtained through the use of a credit card. So how do you establish or reestablish credit if creditors won’t give you the time of day?
If you’re having a difficult time establishing a good credit rating, it might be time to consider a secure credit card. A secure credit card is similar to a traditional credit card, except that you’re required to make a deposit. This deposit ensures that if you default on your payments, the creditors do not incur a total loss. Although a secure credit card acts like other credit cards, there are pros and cons to consider.
The most obvious positive about a secure credit card is that it can be obtained when other credit cards can’t. Due to the required deposit, approval is not entirely based on your credit rating, making it less likely that your application will be rejected. Through a secure credit card, you can finally establish or reestablish credit when you wouldn’t have been able to before. All payments are included on your credit report, and consistently paying on time will improve your credit score, as if it were a traditional credit card.
There are other positives of a secure credit card not consistent with other cards. The required security deposit serves as a safety net, not just for the creditor but for you as well. If you do default on your payments, your deposit is simply withheld, a great alternative to the debt collectors that would have otherwise been at your door.
However, the requirement of a deposit is also a negative in itself when considering whether you should apply for a secure credit card. The deposit can range from hundreds to thousands of dollars, which is not always an affordable endeavor, particularly if you are in debt. As well, this deposit does not include any fees that might be included in the application process, nor the cost of actually having the card once you have been approved.
If you’re considering applying for a secure credit card, be certain that it’s right for you. A secure credit card is great for establishing a good credit rating if you’re in a position to make payments on time consistently. However, if you’re already struggling with debt, the costs associated with acquiring and maintaining a secure credit card could only make matters worse. Also keep in mind that a secure credit card isn’t the only way to establish good credit. Simple lifestyle changes, such as monitoring your spending, can often do more to repair your credit than another piece of plastic.