For consumers struggling with damaged credit, rebuilding financial stability can feel nearly impossible without access to traditional credit products. Secured credit cards have emerged as an important tool for helping individuals establish or repair credit histories while still providing the convenience and functionality of a standard payment card. Although secured cards require discipline and responsible repayment behavior, they can offer a practical path toward improving credit scores and regaining access to broader financial opportunities.
Without regard to how one got into the situation of an impaired score as low as 350, akin to getting a 400 SAT score for showing up with or without a pencil, life without a credit card is almost undoable.
A secured card can help. Instead of a loading a prepaid card, a secured card with a national issuer can help establish credit. It is not a free ride, however. You must still pay your bills or this becomes a costly proposition.
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A quick look at what can happen when you don’t pay your secured credit card bill:
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You don’t pay by the due date: You’ll probably incur a late fee
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Your payment is 30 days past due: You’ll likely incur a late fee and interest on your balance
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Your payment is 60 days past due: Your interest rate may increase significantly
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Your payment is 90 days past due: Your card may be closed, and you could lose your deposit
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Your payment is 120 days past due: Your account may be turned over to a collection agency
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At nearly every stop on this timeline, your credit score decreases.
There are some good business models for secured card. Capital One, for instance will increase your line, above the original deposit, on your sixth sequential online payment.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
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