Secured Credit Cards & Secured Loans Can Help Build Your Credit History
August 24, 2008
Secured credit cards and secured loans are an alternative to signing up for a regular credit card in order to build your credit history. I recently received the email below from a reader who is a recent college graduate and is looking to build up her credit history so she can buy a home in the future.
I’ve recently graduated from college with two degrees, no loans, no debt, but no credit. I didn’t take out a credit card in college. You posted about cards for college kids and I saw an old post about cards for grads and young professionals (who’ve already established credit in college).
I’m single with no dependents. I’m working full time and bringing in a steady income. I’m used to living simply and paying with cash-so I’m not swipe-happy. I realize that this helped me to learn how to budget, live with less, and stay debt free, but I want to buy a home someday.
Are there any cards out there for people who are just trying to establish credit as young professionals? I’ve been looking on bank rate, but I’m overwhelmed. What kind of card should I be looking for? I think that I fall in the gap between your two posts. I have an income, but no credit history.
The point of establishing a credit history is to prove that when you borrow money you’ll pay it back. One popular way to borrow money is to sign up for a credit card where you’re pre-approved to spend a certain amount of money. You agree to pay that money back within a certain amount of time or the credit card company will charge you interest on the balance you owe.
The credit card company is taking on risk by lending to you using a typical credit card and will require some form of proof that you’re likely to pay back the money you borrow. If you don’t have a prior credit history, a credit card company probably won’t want to give you a typical card but there are ways you can reduce the risk to the lender to the point where they’re willing to lend you money.
Secured Credit Cards
When you signup for a secured credit card you place a deposit with the credit card company and they give you a card with a spending limit based on the amount of your deposit. You’re reducing the risk of lending to you by providing collateral for the money you borrow.
The credit card company will report the card details to the credit reporting agencies so make sure you pay your bills in full and on time to build up your credit profile. Here are some of the secured credit cards you can sign up for to help build your credit history:
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