One of the dilemmas many people face when applying for credit for the first time is that lenders want to see that you have a good track record handling credit. The problem is, how you can you demonstrate that you can effectively manage credit if you’ve never had credit extended to you before?
In a similar manner, those with past credit issues but who have been working hard to resolve previous difficulties, also find being approved for credit to be a challenge. Even though these past issues may have resulted from things out of the borrower’s control such as a prolonged illness or job loss, past credit problems can prevent many individuals from being approved.
In fact, even a less-than-stellar credit history can have a tremendous impact on your financial well-being. Common credit situations such as car loans or mortgages that many take for granted, can be out of reach if your credit history is a bit rocky. Even if your credit score is just average, you may be approved for additional credit, but you could very well be forced to pay a higher interest rate to account for the perceived increase in risk. Over the life of a mortgage, for instance, this could result in tens of thousands of dollars in extra costs.
Clearly, having a good credit history has tremendous advantages but how do you go about mending past credit issues when you no longer qualify for credit? One of the most common ways is to use a secured credit card. Here’s how it works.
Unsecured Versus Secured Credit Cards
Before we get into the mechanics of how a secured credit card can help repair your credit history, let’s first explain what we mean by a “secured” credit card. While there are a multitude of credit cards out there all offering various incentives and benefits, all credit cards fall into one of two major categories – secured and unsecured. Unsecured credit cards are the most common type of credit card and this is what most people tend to think of when referring to a credit card.
An unsecured credit card is not tied to any form of collateral and by charging goods or services to the credit card, you are essentially borrowing money from the card issuer. Amounts charged to the credit card must be paid back based on the terms you agreed to when you accepted the credit card.
However, a secured credit card is backed by collateral – typically in the form of a cash deposit – that you provide to the secured credit card issuer. If you fail to make the required payments, the card issuer will deduct from these funds to recover their costs.
The Home Trust Secured Visa
The Home Trust Secured Visa credit card is available with credit limits equivalent to the amounts of the security deposit provided; from a minimum of $500 up to a maximum of $10,000. Applicants can select from two interest rate options – the Low-Rate Option carries an interest rate of 14.9% on all unpaid balances and has a $5 monthly ($59 annual) fee. The No Annual Fee Option, as the name suggests, does not have an annual fee but it carries a higher interest rate of 19.99% on unpaid balances.*
Not only can you make purchases with your Home Trust Secured Visa card anywhere Visa is accepted, you can also access cash from over one million ATMs around the world. Simply look for the Visa or Visa Plus logo and you can quickly and easily withdraw cash from your account. Note that additional fees apply for these services – please refer to the Home Trust Secured Visa webpage for full details.
Rebuilding Your Credit History
The Home Trust Secured Visa credit card is a highly effective way to repair past credit history. Because it is secured by a deposit, virtually all applications can be approved, so even if you’re recovering from a bankruptcy or a consumer proposal, you can still enjoy the convenience and benefits of a Visa credit card.
Home Trust reports the monthly status of your account to both Equifax and TransUnion, and providing these credit bureaus with updated credit activity is key to repairing your credit. With a Home Trust Secured Visa card, and by paying monthly balances in full and on time, you will accelerate the process of rehabilitating your credit score.
* Fees are subject to change at any time. All fees quoted are accurate as of the time of writing.
This post is intended for informational purposes only and is not to be considered financial advice.