secured credit card

A Secured Credit Card — Your Stepping Stone on the Path to Building Credit

Many people find themselves in need of a credit card but are unable to qualify for one. For younger people without enough credit history, or someone that’s trying to repair bad credit, a secured credit card can be a good option.

Unlike an unsecured credit card, a secured card requires you to make a security deposit that serves as collateral for your credit line when the account is opened. Any deposit in excess of your account balance is refundable once you close the account.  You cannot use your security deposit to pay your monthly bill, otherwise a secured card works like any other credit card and offers significant advantages over a prepaid card, such as the opportunity to build a positive credit history, as payment behavior is reported to the major reporting agencies.

 

Secured card features

As with all credit cards, there are many choices for secured cards and it’s a good idea to do some research on which card fits your needs best.

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The shelf life of bad credit

The Shelf Life of Bad Credit

When a credit card bill, loan payment or other financial obligation is not paid as agreed, lenders may send a negative report to credit reporting agencies such as Equifax, Experian, and TransUnion, known in the U.S. as “the big three.” According to Equifax, consumers inquire most often about how long negative information will remain on their credit report.1 Considering the importance of a good credit profile and credit scores, it’s not surprising that this is a topic of great concern among consumers. As you might know, a bad credit score can affect your ability to qualify for a loan, rent an apartment or even get a job.

According to the Fair Credit Reporting Act (“FCRA”)2, negative information can remain on your credit report for up to seven years.3 Additionally, bankruptcies will follow you for 10 years, and unpaid tax liens stay in your credit history indefinitely. Those kinds of scenarios can be very daunting. For example, in the next seven to ten years you may need a new loan, such as a car loan or credit card. A low credit score can cause you to be denied for a loan, or may mean a higher interest rate, or larger down payment requirement.

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Myths and facts about your credit score

The Truth and Fiction About Your Credit Score

As with many financial topics, credit scores are often misunderstood, creating myths about them and how they may affect you. Understanding how credit scores work is important because it can impact so many aspects of your daily life. Here are a handful of myth busters to help you get a better picture of the truth and fiction of credit scores:

 

Errors — You may have thought that your credit report is generally very accurate. However, the Huffington Post reports that 80 percent of all reports contain a big error.1 That means it’s probably in your best interest to be proactive and check your report routinely. Don’t wait to find out that you have an issue.

 

Inquiries — Many believe that pulling your own credit report will negatively affect your credit score. Actually, those types of inquiries have no effect on your score. However, when a lender pulls your credit because you’ve applied for a loan, their inquiry (also known as a “hard inquiry”) may have a small negative impact. Keep in mind that if you apply for several credit accounts, which create hard inquiries, in a short period of time, collectively they may have a greater impact on your credit. The exception is applying for loans when you are shopping for an auto loan or mortgage. The reporting agencies tend to see those types of inquiries as single versus several when they occur in a relatively short period of time.2

 

Cash — When someone has credit problems, their first inclination might be to go to cash only to fix their problem. While there’s nothing wrong with using cash to manage your budget or finances, just using cash will not correct any credit issues you have. Besides, you can’t build a healthy credit profile unless you use your credit and use it wisely.

 

Quick Fixes — Debt settlement and consolidation services may promise a quick fix, but as with most challenges, there simply aren’t any. The most effective way to improve your credit score is to pay your creditors on time and pay down the amounts you owe them.

 

More Income = Better Credit — Income level actually has no impact on your actual score. People that have a higher income do not automatically have a higher credit score, or a better credit history. However, income can play a role in lending decisions, along with your score, your employment history and the amount of debt lenders believe you can manage.

 

Credit Scores from the Big Three are the Same — Most lenders and creditors now report information to the three big credit-reporting agencies — TransUnion, Experian and Equifax. They are all separate companies, so the rate at which they update reporting information and what information gets updated is different.3 Thus, your score will likely be different with each at any given time.

 

Perhaps the biggest lesson learned here is that when it comes to your credit, it’s important to always know where you stand and to understand how your credit can both work for you and hurt you. For more information and insight on credit scores, check back for other articles on the topic.

 

1 http://www.huffingtonpost.com/robert-siciliano/10-credit-score-truths-an_b_4631238.html

2 http://www.myfico.com/crediteducation/factsfallacies.aspx

3 http://www.bankrate.com/finance/debt/11-credit-report-myths-1.aspx

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Credit Reporting Agencies

Fiscal Fitness Part II — Understanding the “Big Three” Credit Reporting Agencies

This second article in our Fiscal Fitness series outlines the basics of how the “big three” credit reporting agencies (CRAs) work. Understanding how CRAs impact your credit score is another great step to take in keeping your credit in shape.

1. Who are the credit reporting agencies?

The three largest U.S. credit reporting agencies— Experian, TransUnion and Equifax — are known as the “big three.” Their two-fold function is to collect information about consumers and report it to lending institutions and other creditors upon request. CRAs are mysterious entities to many consumers. You know they exist and how they can affect you. But how can you work with them and take an active role in maintaining a good credit score?

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Your credit score and housing

Planning to Rent a House or Apartment? Check Your Credit Report First

Your credit score can affect your life in ways you may not have considered. Beyond its impact on your ability to get a loan or a mortgage, your credit score can be a determining factor in renting a house or apartment. Whereas landlords used to rely on their instincts when deciding whether or not to rent to you, online tenant screening programs have now made it easy and affordable to conduct tenant background checks that generally include a credit report. Primarily they are looking for negative entries that show you may not be a responsible tenant in terms of keeping up with monthly payments, such as rent. They will also check to ensure that the name, current address and employer listed on your rental application match what is on your credit report.

If you want to make a good impression on a potential landlord, you should start by getting your credit report in order.

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how credit affects employment

How Your Credit History Can Impact Your Job Search

Most consumers are aware that having a good credit report is extremely important if they decide to apply for a loan or mortgage. What many people don’t know is that their credit history can also be a determining factor in getting a job or promotion.

Federal laws allow potential and current employers to view a modified version of your credit report for purposes of hiring and promoting. This can be unnerving to people who have been unemployed or have a less-than-stellar credit history. In fact, there’s a push to outlaw pre-employment credit checks, and some states have already banned or limited them.

Job applicants also have rights when it comes to this practice. It’s helpful to understand your rights and how to work within them. The good news is that employers must have your prior written authorization before they can request your credit report, and the report they receive won’t include your account numbers, year of birth or references to your spouse. Furthermore, if you are denied a job because of a negative credit report, the company is required by law to give you a copy of the report along with a written description of your rights.

Many consumers are aware that multiple inquiries by creditors into their credit history can affect their creditworthiness if those inquiries are seen by potential lenders. However, credit inquiries made for employment purposes are considered “soft inquiries” and are not shown to lenders.

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Today’s Credit – A Whole New Ball Game

The CARD Act signed by President Obama in 2009, was designed to protect consumers from unexpected increases in interest rates, decreases in credit lines, and other changes in the services offered by credit card issuers.

Though our economy continues to show signs of improvement, the bottom line is that, because of the recent recession, slower than expected recovery and the resulting changes in bank policies and government legislation, the credit landscape has changed forever. Gone are the days of “easy credit” where almost anyone could qualify for a credit line for almost anything. Credit issuers now operate by an entirely new set of rules.

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