Secure credit cards, sometimes referred to as pre paid credit cards, are a wonderful way to improve your credit whether you have very poor credit or very good credit. Please note in advance that secured credit cards are different than pre paid debit cards, and if you have some money you wish to use to receive a Visa or Mastercard, you should always opt to use a secure credit card.

How Prepaid Credit Cards Work

Secure credit cards are fully functional credit cards that are backed up by a deposit with the issuing company. A company offering a secured credit card will not check your credit when you apply, and you should never allow a company to perform a credit check in the application process. This is because a credit check will lower your credit score for a few months, and your main goal in getting a secure credit card in most cases is to improve your credit.

How Secure Credit Cards Work

You have a deposit amount, generally a minimum of $250. You take the deposit to a bank (or apply online) and you will be issued a credit card with a limit that is equal to the size of your deposit. This credit card will operate like any other card; you will have the ability to take out cash advances, buy goods online, and use it anywhere that accepts credit cards. You are required to pay interest on the purchases you make, and you generally cannot access your deposit. You are able to close the credit account at any time, and your deposit will be used to pay any remaining balance on your card. If you do not have a balance, you will receive your deposit in full.

Why Use A Secure Credit Card?

Because pre paid credit cards do not require credit checks, they are the ideal credit building tool for those with poor credit. Every month that you have a secure credit card, the issuing bank will report to all three credit reporting bureaus that you have a credit account in good standing. The credit agencies do not differentiate between a “real” credit card and secured credit cards, so your credit rating will go up even in the first few months after receiving your card. Additionally, for those who do not have a credit or debit card, a secure credit card gives you the ability to make purchases online, sign up for magazine subscriptions easily, and pay at restaurants without using cash. A secure credit card is just like any other credit card in offering you full protection against theft and fraud.

Even better, using a pre paid credit card allows you to build a relationship with a financial services company. Many people who use a secure credit card are offered credit increases on the card, offers for real credit cards, and easier access to different types of loans like personal and auto loans.

If you have poor credit, a secure credit card is a wonderful way to begin digging yourself out of the hole. Starter credit cards often have very high interest rates and punitive fee structures, whereas secure credit cards offer terms that match the very best lines of credit.

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There are many low interest and even 0 APR credit cards available!

Read the following tips to begin saving:

Find the Low or No Interest Card that is Right for You

Before you begin filling out that credit card application, there are a few different things to take into account.

Many credit card companies will offer 0 credit cards with an interest free introductory rate. This is great, but before apply for a credit card, you want to be sure you know all of the details.

Find out how long the introductory rate will last. Typically, the no interest rate is given to a new cardholder for the first six months.  It used to be as long as a year.

Check the regular APR when you apply for credit card. Find out what your rate will switch to once the 0 APR rate has concluded. You will also want to be aware of any additional fees that are associated with the new card, such as an annual fee. There are many cards that you can obtain without an annual fee. Since you are trying to save money, it is suggested you find a company that does not charge an annual fee on their credit card.

Initiate a 0 APR Balance Transfer

Initiating a 0 balance transfer can be done in two different ways.

The first and most recommended is to find a company that offers 0 balance transfers on the entire balance for the life of the loan. In this market, that is going  to be tough to do.  But, if you have good credit, you may be able to find balance transfer credit cards that offer a 0 APR balance transfer for the life of the loan.  Companies offering interest free credit cards are expecting to gain you as a long time customer.

Remember, any purchases you make on your card will be billed at the regular interest rate, but the balance you have transferred will be at no interest until you have paid it off. This is an excellent way to save money and cut down interest costs. This is also the most advised option. If you are unable to find a company that offers a no interest balance transfer, the second option would be to find a card that has a great introductory rate. In this case, it would be wise to pay off as much of the balance transferred as possible before the rate goes up.

Consolidate Credit Card Debt

Consolidating your credit card debt with a 0 interest credit card can save you a lot of money in the long run! If you have several credit cards, it is suggested that you consolidate them with one credit card balance transfer and save money with the lower interest and easier monthly payment.

Take a look at your credit card statements to verify the interest rates you are currently paying.

Depending on your financial situation, you will want to take some or all of your credit cards and open one new account that has the best overall interest and benefits for you.

Instead of making three different minimum payments, make only one to a company that is offering you the 0 balance transfers option.

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History Of The FICO Scoring Method

FICO scores (or credit scores) were developed by the Fair Isaac Corporation to give lenders an effective way to measure the creditworthiness of an individual. Essentially, the credit score is made up of two elements: the borrower’s ability to repay the loan and the borrower’s willingness to repay the loan. The range of the FICO is from 300 to 850. A score of 700 is considered excellent. The average FICO score currently is 690 and falling.

FICO 08: The New Method Of Calculating Creditworthiness

Early this year, FICO introduced the FICO 08. So, far only TransUnion has begun using it; but, it is expected to become industry standard over the next eighteen months. It will change the way that creditors evaluate a borrower’s creditworthiness.

FICO 08: The Important Changes To Credit Scoring

Credit utilization is now more important

This is a measure of how much a credit card holder accesses his or her credit as compared to his total amount of credit. The traditional ratio was 30% of the old FICO score. Under FICO 08, people with high credit card debt in relation to their available credit are riskier than before. Consumers with balances close to their credit limit are likely to see their scores drop lower with FICO 08. Also, consumers with too few open accounts or people who close accounts (lowering total credit available) may see lower scores.

The Piggyback Ride Is Over

Credit card piggybacking is a credit building tool where a person will pay a fee to get listed as an authorized user on the credit card of someone with good credit history. While the “authorized user” doesn’t actually get to use the card, he gets the benefit of the credit history which will be found on his credit report and thereby increase his credit score.

This practice has become so popular that an entire niche industry has been built to match piggy back users with cardholders who are willing to sign them up as an authorized user.

While FICO 08 penalizes piggybacking, people who add a legitimate authorized user (husband, wife or child) will not be affected.

Go And Sin No More

Those of us who have been adversely affected because we failed to return a movie on time can now relax. Third-party collections under $100 will no longer have a significant impact on a consumer’s score. FICO 08 bypasses collections or public records with amounts that originally were less than $100. If the original amount was over $100 but has been paid down to less than $100, it still counts. If it was even a small amount from a credit card company, it still counts.

Miscellaneous Weight Changes

FICO 08 changes the factors considered in the current FICO score, including the length of credit history and the number of open lines of credit.

The FICO 08 system will have dramatic effects on current scores. In fact, it is predicted that several people with identical scores today will have significantly different credit scores under FICO 08. So, it pays to pay attention. Find  out how FICO 08 will affect you before you need additional credit.

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