If you have gone through a consumer proposal or bankruptcy in Ontario, or perhaps a rough patch in life that has led to a bad credit history, then the question on your mind is likely “how can I use a secured credit card to rebuild credit”? And not just good credit, but great credit?
You see, many Ontario bankruptcy trustees, debt counsellors and other financial professionals who you may turn to to get out of debt and get a fresh start will often suggest a secured credit card to rebuild credit – but how you use it really matters.
Here are some things you need to know:
- Your limit matters! For example, using a $300 secured credit card is an option as far as starting to rebuild credit, but in reality it only demonstrates to a new lender that you only have one small credit line. If your plan is to later qualify for a car loan or mortgage financing, we recommend looking at a secured card that has a minimum limit of $1,000. Yes, that means a bigger deposit, but it is worth it in the long run!
- Your behaviour matters! And we are not talking about running up the card and then paying minimum payments. Lenders never like to see that you over-utilize the credit that you have. As a good rule of thumb, your balance should never exceed 50% of your credit limit. So, if you have a limit of $1,000, your balance should never exceed $500.00.
- Discipline is key! If you want to have really great re-established credit, only use your secured credit card for what you can afford to pay in full each month. Don’t make large purchases thinking “oh I can pay it later.” Consider only attaching payment of a phone bill or other bill that you routinely pay in full each month to be paid on the card and then pay the card in full. Perhaps just leaving the card in the drawer is the best plan.
Getting a secured credit card is a good way to start rebuilding credit, but as we mentioned earlier in this blog, really, really strong rebuilt credit means being entrusted with credit. Secured credit is great, but lenders know when the only thing on your credit after having problems is a small card that it is secured.
Lenders like Prudent will extend unsecured financing to a previous bankrupt through a loan. This is a great way to rebuild because you have a pre-set monthly payment that you can build into your budget – each on-time payment on your loan will mean new good credit.
Now – back to behaviour. You cannot afford to have a misstep after a history of problem credit, so late payments and maxing out new credit products will most certainly cause damage to your credit report that will be difficult to repair. Make sure you commit to maintaining great behaviour – after all, this is what new lenders will look at.
Considering a secured credit card to rebuild credit? Make sure you consider the above facts when choosing the option that best meets your needs. Call Prudent today to find out if you qualify for a loan that can make a big difference for rebuilding for the future: 1-888-852-7647.