secured credit cards

6 Ways to Boost Your Partner's Bad Credit Without Risking Your Own

Mikey Rox — Tue, 08 May 2018 09:00:13 +0000

You can't help with whom you fall in love — and that's never more annoying than when the object of your affection has royally effed up their credit. Nobody's calling it quits over a few past financial mistakes, but the situation will need to improve if you two are planning a future together that includes buying a home, starting a business, or other major money-based life decisions.

Since you're now in this together, you have a responsibility to do what you can to make sure you start your joint life on the right foot credit-wise. Here's how.

1. Help your partner review their credit report to flag and report errors

If your partner has terrible credit, it's likely that they don't know how to pull their credit report, flag errors, and report them to the appropriate authority to have them removed or updated. That's where your expertise (or even elementary knowledge) of how credit reports work comes in. Flagging and reporting credit errors is the first step in getting their situation back on track and under control. Once that's squared away, you can move on to the bigger issues. (See also: How to Read a Credit Report)

2. Provide positive reinforcement instead of bailing them out

It's easy to throw money at a problem to make it go away — especially if you have extra cash to spare and the person you love will benefit immensely from your generosity (at least in the short term). But I urge you to avoid opening your wallet to deal with your partner's bad credit. Instead, provide encouragement that they can manage their debt on their own.

They created this situation, after all, and the only acceptable solution is that they work it out without your financial assistance. Help them in other areas, like navigating their credit report, but don't shill out dough to dig them out. The only thing they'll take away from that scenario is that you'll always be the sucker who pays for their poor judgment.

3. Establish a cash allowance that you'll both adhere to

You can't take your adult partner's credit cards from them (even though you might like to), so an easier-to-swallow solution is to jointly stop using credit and instead switch over to an all-cash budget. If they feel like you're both in this together, they'll be more willing to comply. You might have to make a few sacrifices along the way with your cards not available, sure. But if it helps condition your partner to spend and save smarter, forgoing the treat-yo'-self impulse buys you're used to will be worth it. (See also: How to Put Your Spouse on a Budget Without Ruining Your Marriage)

4. Brainstorm actionable ways they can start chipping away at their debt

Sit down together and come up with ideas about how your partner can start paying down their debt faster. That may involve asking for a raise at work; picking up a part-time job; working a few side gigs, like driving for a ride-sharing service and pet sitting; selling off unwanted or unused valuables; downsizing their lifestyle (maybe it's time to move in together so both of you can save?); and canceling all frivolous monthly expenses, like subscription services and memberships. (See also: 5-Day Debt Reduction Plan: Pay It Off)

5. Schedule autopays on pay days

Help your partner set up auto-payments that coincide with their paydays so the money goes straight from their checking account to their debt accounts, leaving them little time to start a spending spree before handling their financial responsibilities. (See also: 5 Ways to Automate Your Finances)

If your partner doesn't like the idea of auto-paying bills, maybe they could get on board with a regular money meeting where you both sit down each week or month to discuss your budget and bills and make payments in each other's presence. It's a way to keep each other accountable, build trust, and establish good money behaviors. Either of these options will make sure the bills are getting paid on time.

6. Discuss secured credit card options

If your partner's credit score is weak, you can help improve it by encouraging them to open a secured credit card. Secured cards are fairly easy for anyone to get because the risk to the bank is low. That's because the cardholder puts down a deposit that's typically the same size as the credit limit (which will be low to begin with). If the cardholder defaults on the payments, the bank keeps their deposit.

Secured cards are great for building credit because your payment activity is reported to the credit bureaus, just like any other credit card. "After demonstrating consistent payment history, your credit score will steadily improve," says certified financial adviser Lou Haverty. "You could consider applying for a regular credit card when your score is in the high 600 to low 700 range."

I took my boyfriend to the bank to get a secured card after he moved in with me because I wanted him to start rebuilding his weak (but not necessarily bad) credit. This was an important step for us to take early on because I want him to have decent credit if we decide to buy a house together a few years down the road. Sometimes that's how long it takes, so there's no time like the present to start working the system. (See also: The Best Secured Cards)

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This article is from Mikey Rox of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Start Building Your Credit History with the Citi Secured Mastercard

Kris Majaski — Thu, 12 May 2016 10:30:07 +0000

Editor's note: This offer is currently unavailable.

If you are just starting out and haven’t yet established enough of a credit history, you may find it difficult getting approved for most traditional credit cards (as well as other loans). In many cases, you’ll need a secured card like the Citi^® Secured Mastercard^®, from our partner Citi, to build a positive credit history, in order to increase your credit score. The world of secured credit cards, however, can be confusing and in many cases, expensive. But, if you’re looking for a secured card to help you start building your credit score, this card could be your ticket to good credit. (See also: Best Secured Credit Cards for Building Credit)

How This Card Works

This card requires a security deposit of at least $200, which is held in a non-interest bearing Collateral Holding Account for 18 months. Once you are approved for the card and you have made your security deposit, you receive a card with a credit limit in the amount of your security deposit. Your account activity is reported to the major credit bureaus and after managing your account responsibly can lead to a better credit rating. (See also: Secured Cards without Annual Fees)

Considerations

No interest on the deposit. Your deposit is held for at least 18 months, but you won’t earn any interest on it. There are other secured credit cards which allow you to earn interest on your security deposit while it is being held. Although it may not end up making you rich, you do end up with a little extra with secured cards that earn interest on your security deposit. (See also: Secured Cards that Pay Interest on the Security Deposit)

High APR. Although it’s typical for a secured credit card to carry a higher than average interest rate, the APR is among the highest. If you carry a balance from month to month rather than pay in full each month, your interest is going to add up and become costly. If you typically carry a balance, it’s best to select a secured credit card with a low APR .

Foreign transaction fee. The 3% foreign transaction fee is only a problem if you plan to use your card for foreign transactions. If you frequently travel outside of the U.S., this fee can become expensive. You can save a significant amount of money with a secured card that charges a lower or no foreign transaction fee. (See also: Secured Cards with No Foreign Transaction Fee)

Who This Card Is Best For

This card is best for those who are in the process of building a positive credit rating, are diligent in paying balances in full each month, and will use the card primarily for domestic purchases. There are limited fees, and you can start out with a deposit as low as $200. Citi is also an established credit card issuer and cardholders will be able to access their customer service and other benefits.

This article is from Kris Majaski of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What Are Secured Credit Cards?

Miranda Marquit — Tue, 09 Oct 2012 10:00:40 +0000

There's a reason plastic is so prevalent as a payment method. Cards are small, convenient, and accepted at a wide variety of merchants. But even though various credit cards, prepaid cards, and debit cards look similar and are used the same way, they are not the same.

A secured card, unlike an unsecured card, is connected to a bank account. And a prepaid card is different from both types of credit card in that it is actually a form of debit, and not credit at all.

If you are looking for a way to rebuild your credit, and your options are limited, a secured credit card might work well for you. (See also: How to Rebuild Your Credit in 8 Simple Steps)

Unsecured vs. Secured vs. Prepaid Cards

There are three basic types of credit/debit cards available for your use, most of them branded with the logo of a major credit card company (like Visa or MasterCard) so that your transactions are widely processed. Even though the usage is similar, it's important to understand the finer distinctions

Unsecured Credit Card

This is a "regular" credit card. You are extended a line of credit, accessible via your card. There is no collateral for this line of credit, so if you don't pay your bill, the credit issuer can't just seize a connected asset. Your available credit varies as you charge purchases and then pay them off.

Secured Credit Card

As with a regular unsecured credit card, you are extended a line of credit. However, you have to secure your credit with a savings account. The credit issuer requires you to deposit a set amount of money into a savings account.

Some issuers require you to deposit a certain percentage of your credit line, often at least half. Other issuers will only issue you a line of credit that matches the amount of money you deposit. Most secured cards require between $200 and $1,000 as a deposit.

This money acts as collateral in the event that you fail to pay your bill. You still make regular payments — with money that isn't held in the savings account — and your available credit rotates as you pay off your purchases.

Prepaid Debit Card

A prepaid debit card (sometimes referred to as a prepaid credit card) is a different proposition. You do not actually borrow money at all when you use this card. Instead, you deposit a set amount of money into an account, and you draw on that money for purchases. When the money is spent, you cannot use the card again until you add more funds. This is not actually credit at all. A prepaid card won't help you build your credit score and is useless if that is your goal. (See also: 5 Best Prepaid Debit Cards)

Which Card Type Is Right for You?

Those who want the convenience of plastic, but don't actually want to use credit, often use prepaid debit cards.

Those whose credit history prevents them from obtaining an unsecured credit card, on the other hand, often use secured credit cards as a way to improve their situation and — hopefully — transition toward using unsecured credit.

Advantages of Using a Secured Credit Card

While they're not for everyone, secured credit cards can be a great tool for those with credit problems.

1. Ability to Get Credit at All

The ability to obtain a credit card when you might otherwise be unable to is the biggest advantage of a secured credit card. Because the issuer knows that your savings account can be seized if you fail to make payments, you are likely to qualify for a secured card, no matter how bad your credit situation.

2. Rebuild Your Credit Score

Many secured credit cards can help you rebuild your credit because the issuers report to credit bureaus. Not all secured credit issuers report to the credit bureaus, however. If you hope to improve your credit score, you need to find out ahead of time whether or not your payments will be reported. You can ask the credit issuer or read the fine print to find out whether or not the card will actually help your credit situation.

Regular, on-time payments offer the best chance for you to establish a more positive financial reputation. On top of that, if you show good credit habits for 9 to 12 months, some issuers will allow you to convert your secured credit card to an unsecured credit card. At the very least, a secured credit card can help you rebuild your credit to the point that you qualify for an unsecured card from another issuer.

Disadvantages of Secured Credit Cards

If you do decide to use a secured credit card, there are many disadvantages you need to be aware of.

1. High Fees

The biggest disadvantage of secured credit cards is the cost. Because secured credit cards are aimed mainly at those with poor financial histories, issuers mitigate some of their risk of loss by charging more to consumers. Secured credit cards are known for their high fees and high interest rates.

Secured credit cards often require activation fees of between $25 and $50, and annual fees of up to $75 or more. There are even some secured cards that will charge you between $10 and $50 for an application fee.

2. Low Credit Limits

Additionally, the credit limits — even with the collateral savings account — are often fairly low. In some cases, by the time you pay an activation fee and your initial annual fee, half your available credit is instantly spent.

3. High Interest Rates

Carry your balance from month to month, and the high interest charges will further eat into the funds available to you. While some secured credit cards offer rates of between 13% and 15%, you are much more likely to be charged 22.9% or more. In some cases, the penalty rate (if you are late with a payment or go over the limit) can be in excess of 30%.

How to Select a Secured Credit Card

A secured credit card may be the only viable choice for someone with poor credit or someone attempting to build a credit history from the ground up. Before applying for a secured credit card, though, it is worth applying for an unsecured card. Most consumers turn to secured cards only when it becomes apparent that the current credit situation precludes an unsecured card.

If you decide that a secured credit card is your best option, shop around. Just as there are different offers from unsecured credit card issuers, secured cards come with varying terms and conditions.

Here are five things to look for when shopping for a secured card:

1. Fees

Most secured credit cards come with a battery of fees. Compare fees, and try to find a card that charges less in terms of activation, application, annual, missed payment, late, and over-the-limit fees.

2. Interest

If you know that you will be carrying a balance, apply for the secured credit card with the lowest interest rate. Even a relatively low rate is still high with a secured credit card, but you should do what you can to minimize the damage.

3. Credit Reporting

Verify that the secured credit card issuer reports to the credit bureaus. Read the terms and conditions, or call and ask a representative before you apply for the card. The point of using a secured credit card is to help you build your credit; make sure that the issuer will report your positive behaviors to the credit bureaus, helping you improve your credit score.

4. Transition to Unsecured Card

Find out how long it takes to become eligible for an unsecured card. Some secured credit cards transition to unsecured cards automatically after you show good habits for a set period of time. Other issuers, though, require you to request the change. Find out what the process is, and how long it takes for you to become eligible for an unsecured account. Your best bet is often to simply call the issuer and find out what your options are.

5. Yield on Your Savings Account

The best secured credit cards will pay an annual yield on the money held as collateral in the savings account. While the yield won't be very much, it's still nice to know that the money isn't just sitting idle; it's working on your behalf.

Like many financial products, the secured credit card isn't for everyone. Carefully evaluate your needs, and what you hope to accomplish with your credit card. If you are trying to rebuild your credit, and you can't qualify for other lines of credit, a secured credit card might be your best bet.

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This article is from Miranda Marquit of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: