Do Secured Credit Cards Rebuild Your Credit History?

Secured credit cards are a special type of credit card that uses the money in a savings account or similar type of account to set the credit limit for the card. Some companies offering secured credit cards give you a higher limit than your deposit. You may also have the option of unsecuring your card to convert it into a normal card after proving you can pay off the card on a consistent basis. These type of cards are a good way to rebuild your credit history after bankruptcy.

Definition

A secured card has to have some sort of collateral backing the account to be called a secured card. The collateral is commonly a sum in a certificate of deposit or checking account with the lender's bank. This amount gains interest as it would normally, and the credit limit is set based on the amount in the collateral account. The secured credit card has an interest rate and minimum payment like an unsecured credit card.

Establishing

Secured cards may be listed on the credit card company's main list of credit card offerings, or it may be offered to you after a denial with one of its unsecured products. The application process for a secured card is identical to an unsecured card, but the credit score requirements are much more lenient with a secured card option. If you are approved for the secured card, the lender informs you of the process required for depositing the collateral amount.

Positive Tradeline

A secured credit card's main way of helping you rebuild a credit history is through establishing a positive tradeline on your credit report. A positive tradeline is a credit account that is current on payments. As you consistently pay on your secured credit card over time, you gain a positive payment history as well. The utilization of the secured card also affects your credit score. Utilization is the card balance compared to the card limit. A lower utilization has a positive effect on your credit score.

Unsecured Cards

Once you have proven that you can consistently pay a credit card on time, the credit card company may unsecure the credit card by giving you the collateral amount back, or it recommend that you apply for one of its unsecured credit card products. The positive trend on your credit report may make you eligible to apply for cards at other credit card companies as well.