I need to rebuild my credit, but I can't afford to incur start up fees or tie up funds for a secured card. Are there other options?

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Question: As a result of a bad marriage and divorce proceedings, my credit is horrible. I need to rebuild my credit, but I can't afford to incur start up fees or tie up funds for a secured card. Are there other options?

Answer: No matter how you got into your situation, few financial tasks are more challenging than rebuilding credit. Getting a credit card when you have poor or bad credit is very difficult and depends on just how bad your credit rating really is. There are cards available which will offer credit under less than optimal conditions. However, if your objective is improving your credit score, the fastest way is a secured card. There is simply no way around it. Here is why.

Unsecured debt such as a normal unsecured credit card is frequently reported to the credit bureaus--especially if it is to report negative information such as a late payment or other default status. Anything negative obviously hurts your credit rating, because more than 33 percent of your credit score is based on timely payment history. Therefore, what you need is significant on-time payment history reported to the credit bureaus.

Secured credit such as a mortgage, auto loan or secured credit card reports to one or all three credit bureaus regularly--typically every month. When you consistently make on time payments, a secured credit card is the fastest way to rebuild credit. However, to get a secured credit card requires a savings deposit account to secure the card. Most banks require a balance of $250 or more, and the amount of your savings determines your credit limit. You can go to most major banks in your community, and they will probably have a secured credit card program.

When determining which program to sign up for, you might ask how often they report to the credit bureaus, and whether they report to only one or all three. You should also determine the purchase APR and not make a decision based upon a promotional APR. Also, ask if after a certain length of time your card can be automatically converted to an unsecured card freeing up your savings account.

If you simply cannot qualify for an unsecured card, this is clearly the fastest way to rebuild credit and your best option.


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