Secured Credit Cards

secured credit cardsTrulia recently did a a study of first time home buyers and discovered that about 30% of the people they interviewed pretty equally fell into one of these categories:

  • Wanted to Buy a home but they worried about down payment.  (If that’s you – no worries, there are tons of No Money Down Home Loans!)
  • Wanted to Buy a home but they worried that they wouldn’t Qualify.  (If that’s you – no worries, with rates so LOW, it’s usually CHEAPER to own!)
  • Wanted to Buy a home but they worried that their credit scores are not high enough (This post is for YOU!)

If you’ve talked to us recently about your credit scores… and you don’t have any revolving charge accounts open… we probably told you that you need a secured credit card.  This is a credit card tied to a SAVINGS account that you establish.  There are no Credit Inquiries, but there are somethings you need to remember when opening one of these accounts.

Where can you get a Secured Credit Card?

Well, first let’s talk about where you should NOT get one!  Most Credit Unions do not report to all 3 Credit Bureaus, for that reason, we recommend that you contact a Bank.  Capital One, Provident, Orchard and First Premier all offer these accounts.  Bank of America and Wells Fargo offer secured Credit Cards too.

Let’s say you open an account with a $300 limit ($300 savings account attached to it) – the Bank will pay you interest on that savings.  They will also charge you, maybe as much as $79 for the “priviledge” of opening the card.  Just accept that there’s going to be a charge – but go to Credit Karma and compare the initial charges to find the best one for you.

What Should You Charge On the Secured Credit Card?

I normally suggest that clients set up one account with a Utility Bill being drafted from it.  In our case – that would NOT be the Verizon bill, because ours generally runs over $300!  You want to pick a bill that has less than $75 a month average bill if the limit on the Secured Credit Card is $300.  Pay this card off each month, leaving a balance of $10.  Yes, you will pay a “baby” amount of interest – but this is really the way to get those scores higher!

Because you really need TWO revolving trade lines.. when you can establish the second one, maybe you want to use it to fill up the car with gas once a month.  Again – ALWAYS keep the balance of Revolving credit below 1/3 of the Credit Balance.  So, with our $300 example, we don’t want a balance higher than $100.

How Long Will It Take For A Secured Credit Card To Raise My Scores??

I always tell people that Credit is like a Snow Flake – no two credit files look exactly alike.  Because of that there’s no way for me to make an across the board assessment… HOWEVER – I can tell you that for folks who are “Close,” meaning they have scores close to 620, or 600… we normally ask folks to call us back after they make their 4th payment so that we can “peek” and see how you are doing!

Other Things To Remember…

In some parts of North Carolina there’s this “Urban Myth” that if you just “Dispute” all of the bad stuff on your credit report, you will get higher scores.  If you’ve been drinking this Koolaid… we suggest re-thinking that idea.

Also, while you are in the process of trying to get a higher credit score… whatever you do… DO NOT LET SOMEONE PUT A NEW COLLECTION on your credit report.   If you get a notice that some Doctor is mad – send them $25.  Set up a payment plan.  DO NOT accumulate new collections.

We are really pleased to be able to help people through the process of getting higher credit scores so that they can purchase a home. There are HUNDREDS of families working hard right now to make that happen!  We are so happy when we all meet at the Closing Table and you get the keys to your dream home!  #TotallyWorthIt!


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