Making Payments On Time Helps Rebuild Credit

by admin on September 7, 2014

Another way to build or rebuild credit is to use a secured or prepaid credit card. Credit card companies, credit unions, mainstream banks, and other financial establishments advertise credit cards. Not all banks offer secured credit cards, and there is a trend in the banking sector toward unsecured credit cards. Some financial institutions now offer unsecured credit cards will lower credit limits and higher interest rates and fees. Still, this is a good option to build or rebuild credit. Secured credit cards are intended for people who seek to establish or rebuild credit after some major event, for example, serious illness, loss of job, or divorce.

Secured loans and credit cards are offered to persons with less-than-perfect credit, and they are easier to obtain. Borrowers who have bad credit are often required to offer collateral as an additional guarantee. Thus, financial institutions take less risk. People who apply for a secured credit card deposit money with the credit card company. The issuer can seize the deposit if the borrower is unable to keep up with payments.

Two types of debt instruments are taken into account when assessing the borrower’s credit history – personal loans (instalment loans) and revolving credit such as personal lines of credit. Borrowers who seek to rebuild credit are advised to consider both options – instalment loans and revolving credit. At the same time, borrowers with credit problems and histories of late or missed payments are viewed as high risk. Borrowers with poor credit are usually offered outrageous interest rates or are turned down by financial institutions because of their poor credit history. That is why borrowers resort to secured loan. Borrowers who offer collateral increase their chances of getting approved. Moreover, they are often offered a more reasonable interest rate, thus saving money on interest. Borrowers find their monthly payments more manageable, and it is easier for them to budget. Making payments on time helps rebuild credit.

It is important to check whether the credit card company reports to the credit agencies. If they do not, borrowers lose a major benefit. In general, if offers for unsecured credit cards start coming to your mailbox in a couple of months, you can be sure that your credit card company reports to the credit reporting agencies. Make sure the credit card issuer does not flag the report as secured or prepaid credit card because you will find it difficult to rebuild credit this way. How long does it take before financial institutions offer you an unsecured credit card? Credit card companies and banks want to keep their clients, which is why they will offer you an unsecured credit card provided that you make regular payments. On average, it takes about a year to build credit and qualify for an unsecured card.

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