Using Secured Credit Cards to Rebuild Credit after Debt Issues

After suffering from debt issues, you may want to start rebuilding your credit as soon as possible. However, you are likely to find a combination of cold shoulders and vultures – some put you down, and some want to bleed you dry. Unfortunately, filing too many (rejected) applications can also have a negative impact on your credit score.

Since your bad credit history has proven you to be a risk to the lender, those who are willing to lend you money will do so at increased interest rates. Making use of credit offered at these increased rates may simply add more financial pressure, increasing the risk of falling behind again.

Secured Credit Cards

The most logical option would be to apply for a secured credit card. Since there is little risk involved to the financial institution, there are usually no problems in getting approved.

You will find, however, that the fees charged may vary – since the credit card company still considers you a higher risk than the average person, you may end up paying slightly higher service charges than usual. However, compared to the value you can derive from rebuilding your credit profile, it is a small price to pay.

Set a Limit

Because you are literally spending your own money, you determine your own limit. Whichever amount you deposit at any given time becomes the new spending limit. Once you have used all the available “credit”, you will simply not be able to make any more purchases until you make a new deposit.

Make Regular Deposits

Your bad credit score arose from not being able to make payments on time as agreed. When using your secured credit card, make a point of making regular deposits to keep the balance even at the start of every new month. The new, healthy payment pattern will eventually be visible to creditors – allowing you to prove that your financial habits have changed for the better. Make small purchases from your card, and stick to the payment schedule.

Your Credit Report

When choosing a secured credit card provider, ascertain that your payment history will be forwarded to the credit bureaus. Not all companies do it, and it is essential for you to be able to prove your capability to handle your finances. Keep in mind, however, that if you fail to keep up the payments, it will simply mean that there will be additional bad entries on your credit profile – which is hardly what you want.

Using secured credit cards to rebuild credit is the first step in restoring your credit profile. Over time, your continuous regular payments will allow you to apply for a regular credit card. Once approved, you will once again be able to qualify for better interest rates, and lower service charges.


By , on Jul 28, 2013
Stephen Cline has a dual bachelor's degree of Business Administration and Finance and has worked for numerous financial corporations in the past 4 years. Taking some time off from the corporate world, he is currently getting his MBA at the University of California, Berkeley. You can visit his website at Economic Crisis Blog and follow him on Twitter.


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  1. Kate:

    Luckily I was able to raise my credit score without getting a secured card by removing some collections and paying off a large credit card balance. I was looking into secured cards and they are a great way to help restore your credit if you have made some mistakes in the past.

  2. Good article! Many times we want to find quick fixes to our credit problems. However, the answer usually calls for discipline and patience!

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