Secured Credit Cards
If you have had some credit issues in the past, or are trying to build a credit history, you may want to consider applying for a secured credit card. Secured credit cards allow you to establish or re-establish a solid credit rating which is essential when you are applying for a mortgage.
A secured credit card is much the same as a normal credit card. The only difference is that these credit cards require a security deposit for eligibility. The security deposit can range anywhere from $200 to $10,000 and your resulting credit limit will be equal to this amount. This deposit also earns interest, as long as your card is open and in good-standing. Once you have established a solid credit history with your credit card company, you can request to have them release your deposit over time. However, you could look at it as a savings account maybe even set this security deposit aside to use as a down payment on a home!
Understand that a secured credit card is not the same as a prepaid credit card. Your Secured card will have a revolving credit limit and If you charge something you will have to make a minimum payment every month. A pre-paid credit card, on the other hand, is more like a gift card and is not attached to your personal name. As such, It does not help you rebuild your credit rating.
How will a secured card improve your credit?
As you use your secured credit card on a regular basis and continue to make consistent payments you will develop a history. The credit card company will report your usage to the credit bureau agencies on a monthly basis and your credit history will improve.
If you are working to rebuild your credit, most mortgage lenders want to see at least 2 years of perfect repayment history on two credit facilities (credit card and car loan, for example).