Building Credit History - Credit Card
Most people tend to blame a past experience with a credit card for some of their credit report woes, but actually building credit history back up with a credit card is one of the best ways to get it done.
There are many people who have had a bad past experience with credit card debt and it has been a major source of their poor credit history. Other people are just getting started and are wondering how to get enough good credit history to qualify for a credit card. The truth is that building credit history and even restoring bad credit history can often be done with a credit card. The credit card industry itself offers the answer to establishing and restoring credit with a wonderful instrument called the secured credit card.
The secured credit card works very simply. In almost every fashion, it is exactly like any other kind of credit card with one major change. The credit limit is secured with a deposited amount of money. Many people view this as basically borrowing their own money and even paying interest on the use of their money, but this is not the case at all. The security deposit is exactly that. It is a deposit that is there only to protect the credit card company in case of default.
The credit line is determined by the credit card company based on the credit history, or lack of credit history, of the card holder. In some cases, the credit line will be the exact amount of the deposit. When this is true, the credit card company is completely covered in case of default. The actual credit card balance will not exceed the security deposit, so if the card holder does not pay for his charges in a timely manner, the deposit is forfeited.
Although at first glance, this seems to be something totally favorable to the credit card company, the truth is that it is the card holder who benefits from the idea of secured credit cards. The credit card is going to be very likely to issue a secured card regardless of lack of established credit or even past bad credit. Since it has nothing, or little, to lose, it is willing to issue the card. Now, the card holder has the opportunity to establish credit by simply charging some items and paying his bill promptly and in full.
It usually does not take the credit card company too long to recognize good paying habits in a customer with a secured card. Once the credit card company feels the cardholder presents a good risk, the credit line can be raised. Usually, this is done in increments allowing the cardholder to further prove themselves and further improve their credit rating. Although defaulting on credit card payments, like defaulting on any debt, will quickly destroy your credit rating, nothing builds it back up quite as good as a history of prompt repayments of charged amounts. Each credit card transaction is like a little loan and every loan repaid is a plus to your credit score.