Some people have a poor credit record because they have not paid outstanding debts in the past or because they have recently filed for bankruptcy. People with poor credit records are generally unable to get any credit at all, or if credit is extended, the finance charge is the high and comes with an “application fee” to obtain the credit.
Some lenders have begun to offer secured credit cards to those who have bad marks on their credit record. Under a secured credit arrangement, the debtor places funds on deposit with the bank or other financial institution. The lender then allows the debtor to make credit card purchases from 90% to 150% of the amount placed on deposit – depending upon the individual circumstances. This arrangement enables people with poor credit records to have the convenience of having a credit card, while assuring the lender that there is a source of money from which the obligation will be paid.
Unfortunately, some of the secured credit card offers are scams. Visit the Federal Trade Commission’s website for more information. If you are using a secured credit card in order to create a good credit history, you need to make sure that credit card company reports to a credit reporting bureau. Not all of them do, and if yours does not, you will waste your effort.
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Are secured credit cards a good way to build credit? Yes they are, but it may no...