For those looking to establish their credit history or shine up a “tarnished” one, credit may be a bit harder to find than in the recent past. With the recent upset in the nation’s economy, lenders are tightening up their standards and raising their rates. If you don’t have an established credit history that twinkles with health and vitality, don’t despair. There are ways to start building or repairing credit, even now.

The secured card
Think of the secured card as the junction where debit meets credit. Like a debit card, you must put money in an account. However, that money operates as security. You can charge up to the amount you have in the account, but the money isn’t subtracted like it would be on a debit card. Instead, you’re sent a bill at the end of the month, which you pay all or part of (all is better).

Secured cards have lots of advantages:

• You can’t overspend. Once you reach the limit of what you have in the secured savings account, you’re done until you pay some or all (all is better) of that debt down.
• Unlike some prepaid credit cards, secured card lenders generally report to the credit agencies, so you can begin establishing your credit history.
• As you demonstrate good credit behavior, your limit will rise. Eventually you can make the switch from secured to unsecured credit.
• The money you have secured in that savings account will continue earning interest.

Questions to ask before applying:

• Do you report to the credit agencies? (Will this count toward my credit score?)
• How much is the annual fee?
• Do you charge insurance? (If they do, move on–legitimate lenders won’t charge)
• How much interest can my savings earn?

To get the best return from your secured card, follow these simple rules:

• Pay your balance off in full every month.
• Never charge more than 1/3 to 1/2 of your available credit. That debt-to-available-credit ratio makes up a big part of your credit (FICO) score. Lenders like to see a big gap between how much credit you’ve used and how much you have left. This is true even if you pay your balance in full every month.
• Pay all your other bills on time and in full. While this may have nothing to do with your secured card, it’s not very useful to build good credit one way and blow it another.

Of course, GHCU offers its members a fantastic Visa® secured credit card to get you on the road to a healthy credit score. From the Visa credit cards page on our website, click the “variety of cards” link for more information.

Filed under: Financial News and You by Shannon