Credit Cards, Part 2

Another way to establish or rebuild credit is to apply for one or two secured credit cards. These work just like any other major credit cards (Visa or Mastercard), however, your credit limit is determined directly by the amount of money you deposit into a special account provided by the card issuer. Thus, the credit card is secured by the money you have on deposit. A variety of fees apply to this type of card, but the benefit is that the accounts are reported to the credit reporting agencies as regular credit cards, so if you manage one or two of these accounts properly, you can begin rebuilding or establishing credit. (Secured credit cards are different from bank issued debit cards, which deduct money for purchases directly from your checking account. Secured credit cards are also different from prepaid Visa or Mastercard debit cards that require an advance payment, which determines your credit limit. These prepaid credit cards do not report to the credit reporting agencies.)

o College students first trying to establish credit can take advantage of a variety of special credit card offers. Proof of being a full-time student is required to take advantage of these offers. Credit card offers targeted specifically to college students are advertised on college campuses and are often mailed directly to college students. Remember, improperly managing these credit card accounts could destroy your credit rating and reduce your credit score, just as the improper use of any credit card would.

o For each credit card you have, become familiar with the terms and fees listed within the Card Holder Agreement. Every credit card account will come with a different agreement and will have different fees and rates associated with it. Don’t just read one Card Holder Agreement and assume it applies to all of your credit cards, even if you have multiple cards from the same bank, financial institution or card issuer.

If you know you’ll someday (within the next seven to ten years) be purchasing a home and obtaining a mortgage, buying (or leasing) a car, need a new credit card, or be applying for any type of credit or loan, it will be necessary to have “good” or “excellent” credit. By determining what your credit situation is like right now, you can begin building, rebuilding, and better managing your credit so it will be available to you when you need it. Simply by avoiding common credit-related mistakes made by consumers, you can protect your credit rating.

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