Bandages for Bankruptcy
Question from credit newsletter reader:
I would be interested in information on how to bandage one's credit from bankruptcy.
Answer from Jeanette Joy Fisher
#1 Rule: Don't make another late payment.
#2 Rule: Don't apply for a lot of new credit.
# 3 Get some credit, even if you need to a cosigner or to start with a secured credit card.
If you travel, you generally need a credit card, even if you're going to pay cash. You need one to make your reservations to rent a car, for example, and you'll also need one when you get to your destination to sign in at your motel. Love them or hate them, credit cards are simply a fact of today's world. However, getting a credit card can sometimes be a challenge, especially if you've never had one before or if you've run into financial difficulty in the relatively recent past.
But that doesn't mean you can't get a card, and one way to do that is to sign up for a secured credit card.
Here are a few things you should know if you're thinking about getting a secured card, but first, let's define the term. A secured credit card is one that requires you to put a certain amount of cash into an account, which then becomes your collateral for a card (often that amount is $300-500).
With that money in the account, you're free to charge up to that amount on your secured card. It can be a great way to get started, and if you continue to stay current, you'll sometimes be rewarded with either a credit limit increase that exceeds the amount you initially deposited or an offer to obtain an unsecured card.
A good place to look for a secured credit card is your local credit union. Quite a few of them offer their members secured cards, and many of them waive the annual fee that nearly all secured cards charge. If you don't belong to a credit union, shop around before you sign up for a card. Some companies even charge a fee to apply for a card, and the annual fees can vary greatly. You'll also want to read the fine print carefully. You want to know the interest rate, the fees, and the required deposit, and anything else that might be required.
You also want to know if the company will report your credit history to all three of the major credit bureaus. This will be important later on, because the main reason for getting a secured card in the first place is to establish a credit history that will serve as a stepping stone to more credit later on. If the company doesn't report your good payment habits, you're not gaining that advantage. How can you tell if they ARE reporting? You should begin getting offers from other secured credit card companies after you've made several payments on time. After about a year of excellent payment history, you'll often be able to qualify for an unsecured credit card.
The best way to put your card to use in building (or rebuilding) your credit is to make a few small purchases each month and then pay them off. Since they generally carry high interest rate, you don't want to carry a balance on a secured card. Your goal is to establish a good payment history, and although they serve a purpose, unsecured credit cards should best be looked at as a means of gaining entry into the unsecured credit card world.
Free Credit Tips for Mortgage Financing and Wealth-Building Tools ebook at the Real Estate Credit Help Center
Copyright © 2006 Jeanette J. Fisher
I would be interested in information on how to bandage one's credit from bankruptcy.
Answer from Jeanette Joy Fisher
#1 Rule: Don't make another late payment.
#2 Rule: Don't apply for a lot of new credit.
# 3 Get some credit, even if you need to a cosigner or to start with a secured credit card.
If you travel, you generally need a credit card, even if you're going to pay cash. You need one to make your reservations to rent a car, for example, and you'll also need one when you get to your destination to sign in at your motel. Love them or hate them, credit cards are simply a fact of today's world. However, getting a credit card can sometimes be a challenge, especially if you've never had one before or if you've run into financial difficulty in the relatively recent past.
But that doesn't mean you can't get a card, and one way to do that is to sign up for a secured credit card.
Here are a few things you should know if you're thinking about getting a secured card, but first, let's define the term. A secured credit card is one that requires you to put a certain amount of cash into an account, which then becomes your collateral for a card (often that amount is $300-500).
With that money in the account, you're free to charge up to that amount on your secured card. It can be a great way to get started, and if you continue to stay current, you'll sometimes be rewarded with either a credit limit increase that exceeds the amount you initially deposited or an offer to obtain an unsecured card.
A good place to look for a secured credit card is your local credit union. Quite a few of them offer their members secured cards, and many of them waive the annual fee that nearly all secured cards charge. If you don't belong to a credit union, shop around before you sign up for a card. Some companies even charge a fee to apply for a card, and the annual fees can vary greatly. You'll also want to read the fine print carefully. You want to know the interest rate, the fees, and the required deposit, and anything else that might be required.
You also want to know if the company will report your credit history to all three of the major credit bureaus. This will be important later on, because the main reason for getting a secured card in the first place is to establish a credit history that will serve as a stepping stone to more credit later on. If the company doesn't report your good payment habits, you're not gaining that advantage. How can you tell if they ARE reporting? You should begin getting offers from other secured credit card companies after you've made several payments on time. After about a year of excellent payment history, you'll often be able to qualify for an unsecured credit card.
The best way to put your card to use in building (or rebuilding) your credit is to make a few small purchases each month and then pay them off. Since they generally carry high interest rate, you don't want to carry a balance on a secured card. Your goal is to establish a good payment history, and although they serve a purpose, unsecured credit cards should best be looked at as a means of gaining entry into the unsecured credit card world.
Free Credit Tips for Mortgage Financing and Wealth-Building Tools ebook at the Real Estate Credit Help Center
Copyright © 2006 Jeanette J. Fisher
posted by Jeanette at Wednesday, October 25, 2006
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