American Life Guide: Guaranteed Credit Cards to Help You Get Credit
In North America, where credit history is so important, all kinds of loans to buy a home and a car are expected to get low loan rates with a good credit history. Credit cards not only give you a monthly advance, but also help you save your credit history. However, if you've just arrived in North America without a credit history, or if your credit has been compromised, it's not easy to apply for a typical credit card. Signing up for a guaranteed credit card is a viable way to get your credit back on track.
When applying for a guaranteed credit card, financial history or lack of financial history is not a problem, and all borrowers are welcome and approved. How can every applicant be approved? This involves the concept of Security deposit.
To get a guaranteed credit card, you'll need to pay a deposit to the company that issued you the credit card, typically $200 to $300. As long as you pay the deposit, your application will be approved. In most cases, you can deposit a deposit into a security or earn interest as a term deposit. This deposit acts as your credit line, and when you cancel the card, the deposit and the proceeds will be returned to you together. But if you don't pay your credit card bill on time, the credit card company can charge your deposit.
If you use a guaranteed credit card for a period of time and pay your bills on time, the credit card company reports your account and payment status to the three major credit agencies. In this way, you will build a positive credit history. With a good record, you can get a regular credit card and then you can get your deposit back.
For any credit card, the way to build a credit is to spend no more than 10% of your credit limit. If the credit limit is $250, that means you don't spend more than $25 a month on the card. If you have a $300 credit limit, you'll spend no more than $30 a month. Therefore, transactions made with secured credit cards can only be small. Maybe buy one or two lunches a month with that card, and that's it. Or think of using this card to make a small transaction you have to do every month, and that's all.
Remember: You're using this card to build credit, it's not a tool for you to borrow money. Guaranteed credit cards are a good choice for small expenses that you can easily pay. Make sure that the guaranteed credit card costs no more than 10% of the credit limit. Paying $10 or $20 a month with the card may seem like little and irrelevant, but if you pay off those small expenses in full every month, it can do a big thing for your credit, and here's why it doesn't cost more than 10 percent of your credit limit. FICO credit score is a standard credit scoring model used by lending banks. The 35% point that makes up The Fico's credit score is based on your payment history. Building a clean payment history is a step to improving any credit score. How do you do that? It's easy. Just pay off your credit card on time every month. Spend 10% or less of your guaranteed credit card, making it easy to pay back in full on time.
Another key element of credit score is recycling. This utilization is calculated by dividing the current balance of the secured credit card by its credit limit and multiplying that number by 100. For example, suppose you have a credit card with a credit limit of $300 and you're currently $15 in arrears. 15 (current balance) divided by 300 (credit line), you get 0.05. 0.05 times 100 is 5%. You're using 5% of your credit limit. Your recycling rate is a healthy 5%. 30% of the Feeko score is based on recycling. The lower the cycle utilization, the more points you get on your credit score. That's why it's so important to spend no more than 10% of your credit limit in any month.
By contrast, buying a commodity with a credit card with a low credit limit can damage your creditworthiness. For example, you spend $275 on a $300 guaranteed credit card. To make you pay your arrears in full, spending so close to your credit line will deduct points from your credit score. Because you use a guaranteed credit card to build credit, you want to keep your spending as low as possible.
After six months to a year of responsible use of secured credit cards, your credit score will improve and you will be eligible for unsecured credit cards that do not require a margin.
