One rather finicky predicament that many Canadians find themselves in, is having bad credit. I’m sure this is nothing new to hear – although maybe it just is not something you have had to deal with thus far. If, however you are reading this – then perhaps time’s have changed and you have encountered some financial difficulty – with bad credit now being a huge thorn in your side.
As it is, having a poor credit score can have many financial ramifications for you – one of which is that when you need to apply for a loan or for more credit, such as in the form of a new credit card it is not necessarily a sure thing that you will be approved for how much you need. In fact, it is very likely that your credit application could also be denied altogether.
Now with that being said, what options does this leave you?? With limited credit card opportunities at hand, you may be advised to improve your credit and the to reapply down the line when it has seen some improvement. Well, that is all fine and well – and is actually pretty good advice – however, what do you do if you need credit now and can’t wait?
One of the options that you may find is obtainable with your current credit score range
is to apply for a secured credit card. The financial institution you are dealing with may actually present this as your best option at the moment – and they may suggest that it can also help you to repair your credit.
At this point, this probably all sounds fantastic – although, it is also important to first understand what exactly is a secured credit card – and how it can help you to rebuild your credit. One of the initial questions you may have in this scenario is ‘if I have applied for an unsecured credit card with a low limit and was denied, then why would I be approved for a secured card??
First and foremost, to answer this question let’s examine the difference between unsecured and secured credit cards. Unsecured credit cards, which make up the majority of most card options are credit cards that are do not require the card user make an upfront deposit – that is to be used as collateral. With most cards, you are approved based on information that deems you capable of repaying off your credit card on an ongoing basis and thus the card issuer does not think it is necessary to have these preventative steps in place.
Secured cards, on the other hand require that you do make a deposit prior to usage, and this deposit is the collateral that is used to repay the credit, if you are unable to. Unlike unsecured credit cards users, borrowers who may be at a slightly highly risk of running into trouble repaying the loan – will be asked to make this deposit in order to secure the credit they need.
Additionally, a secured credit card typically only comes with a low credit limit – often half the size of the deposit you put down in the beginning. Like all credit cards, you make a payment towards your balance each month, although with a secured card it is even more recommended that you pay off the entire balance each month, if possible. As an added safety precaution set forth by the card issuer, when you near the credit limit – the credit provider can put a hold on your card – and use the deposit to the pay off the card and avoid losses.
While this type of credit card is similar to other card, in that it does require that you act as a responsible borrower – it also has some built in ‘safety-net’ like features that promote more successful borrowing and repayment efforts.
As a result, this type of card can help you to get your finances on track by enabling you to slip back into a more consistent monthly repayment routine. If you did struggle with missed payments with your past credit sources, this is likely to have greatly contributed to your credit woes.
Therefore, being able to establish more efficient repayment patterns using your new secured credit card, can help encourage your credit score in an upwards direction once again. These ongoing positive payment efforts demonstrate to credit bureaus and any future potential lenders that you are in fact a responsible borrower and as a result your credit rating will rise.
All in all, you can crack open some more windows and doors for yourself – and when it again comes time to take on more credit and apply for the loan – or a new credit card, you are much more likely to be approved with a higher level of success and ease.
While a secured credit card may be the way to go, you will want to examine your options and see if this credit area is a good fit for you and your current situation. Now that you know that you do have the potential to rebuild your credit through a secured card – I hope this will provide you with more assurance that there are credit sources that can help you improve your credit score.
Again with consistent repayment and credit management, you can improve your credit and look towards applying for a different credit card – perhaps with an unsecured one with a higher limit this time. Once you get in the habit of being a more effective borrower, you can turn your financial future around for the better.