100,000+ views

1 min


Consider Secured Cards While Rebuilding Your Credit Score

Ryan Moran 3/1/16

When you’re trying to rebuild your credit after a financial disaster, there are credit cards out there that you can qualify for.

There are a dizzying number of options to choose from when selecting a credit card. Different cards have different credit limits, as well as different interest rates and different rewards programs.

Unsecured credit cards:

Unsecured credit cards are issued by a creditor on the condition the cardholder promises to pay back whatever debts are charged to the card plus interest.

An applicant for an unsecured credit card also is subject to a credit inquiry, in which the creditor checks your credit history to determine whether they can rely on you to pay your credit card bill each month.

However, if your credit score prevents you from qualifying for an unsecured card, don’t panic.

How will you be able to rebuild your credit if nobody will issue you a card?

Secured credit cards:

It seems like a Catch-22, but you have another option – a secured credit card. A secured credit card will require a deposit or an asset that will act as collateral for your debt.

Lenders will place a lien on your asset, which enables them to take control of your property in the event you fail to make your payments on time.

A good example of an unsecured debt is a mortgage. If you fail to make your mortgage payment on time, a creditor may repossess the collateral you’ve put up for your debt (in this case, your home) in a foreclosure.

“Secured credit cards are good if you

need to rebuild your credit score.”

Secured and unsecured cards have advantages and disadvantages.

With an unsecured debt, creditors have no claim to any of your assets in the event you fall behind on your payments.

However, they may resort to other tactics to reclaim what they’ve lent you. This can include harassment, a lawsuit or a court-ordered wage garnishment, and these can all be equally as unpleasant and stressful as a creditor taking control of your assets.

Secured credit cards are a good option if your credit score is low and you need to begin to rebuild it. You may feel nervous about having to put up collateral, but as long as you make your payments on time, there’s nothing to worry about.

Secured credit cards also have a lower credit limit, which can keep you from overextending your credit. These cards also often have higher interest rates to encourage you to pay your monthly bill on time and in full.

Photo source: incredits.com

About Ryan Moran
Ryan Moran received his Juris Doctor from Michigan State University in 2006. He worked briefly in Illinois at the Chicago Board of Trade as an economic analyst for a bond-trading firm. After that, he founded Moran Law, which specializes in bankruptcy law and financial health. Ryan enjoys reading, basketball and spending time with his family.
« Back to: Blog