Secured Credit Cards

Gas cards and department store cards are a good way to rebuild your credit if you are just starting out, but can be tough to get if your credit is already trashed. Also, these cards do not help your credit as much as a major credit card.

Major credit cards are scored higher than "finance cards" (usually a credit card which can only be used at the store who issues it, like Best Buy, Texaco cards, etc.) So how do you get a major credit card if your credit is trashed? Secured credit cards.

Traps to avoid in secured credit cards

Make sure the secured card you choose to help you rebuild your credit:

• Reports the credit card limit you have (even if it's only $200).
• DOESN'T report that the card is a secured card.

Reporting the balance

Credit scores take into account the total amount of credit available to you and the current balance you have on your cards. They use this to calculate your debt ratios which is:

Current Total Balances/Current Total Credit Limits = Debt Ratio.

If they are not able to do this calculation, they will just guess what the limit is and this is going to be your current credit card balance or 100% of your credit limit used. Remember in the credit scoring article, the scoring model likes to see 25% or less of your credit limit used.

Reporting that the credit line is secured

If you get a card which reports to the credit bureaus that it IS a secured card, your credit score will also take a hit, even if you are paying on time.