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Rebuilding your financial life? A secured card can help

Erica Sandberg

September 3, 2015

QHi Erica,

There was a time when my finances were so perfect I had credit offers coming to me all the time. Then my only son died, and my life fell apart. I fell into addiction and depression. I lost my job, and I ate up my savings. That was 10 years ago. I'm in a program now, and I think I'm on the right path, but I have to start from zero. I have a job but no credit cards now. I'm feeling stronger every day, but I am at a loss  as to how to restart my finances. I don't even have a credit report now. I'm like a newborn baby. Can you help me? I would appreciate a response soon. — Allan

ADear Allan,

I'm so glad you feel prepared to relaunch your financial life. And trust me, it will be easy compared to what you've been though.

Since you've used credit cards perfectly in the past, you probably still know how to charge advantageously. The trick now is to get an account. In general, you need a consumer credit report and credit score (which is calculated based on the information on the reports) that indicate you're a good credit risk.Ask Erica

The problem is you probably have what's called a thin credit file now. Because you haven't borrowed and repaid in positive ways for about a decade, there's not much on your record for a new creditor to assess. Credit reports show well-managed but closed accounts for 10 years. Most negative data, such as evidence of late payments, charge-offs and collection activity will be removed after seven years. You don't mention going through a Chapter 7 bankruptcy, but that stays for a decade.

Without recent activity , a credit card company will have a difficult time understanding whether or not you will be a responsible cardholder. So what can you do now? Sweeten the pot with cash.

A secured card would be ideal for you. This type of account requires a refundable deposit, which acts as collateral. The issuer will give you a credit line that is usually about the same amount as the what you deposit. If you charge and repay responsibly, the account performs identically to an unsecured credit card. However, if you run up a balance but fail to pay for a few months, the issuer simply can claim the funds held in deposit. The issuer takes no risk in lending the money to you, so the accounts are fairly easy to obtain. Qualification usually requires a steady income, which you have.

Check out the available secured card offers on this site and pinpoint the account that appears best for you. Some cards have annual fees and others don't, but look beyond that. Each card comes with its own set of terms, so read them carefully. Apply for the one that seems to be the best fit.

Once approved, you can begin to charge again. The credit issuer will send your activity to the three credit reporting agencies (TransUnion, Experian and Equifax), and you'll be back in the game. To be and remain a winner, make sure you always pay on time and keep the debt to zero or very low.

After about a year of wielding the secured card this way, you'll have created enough of an excellent charging pattern to appeal to other issuers. If you choose, apply for another credit card that doesn't require a deposit and that offers more favorable terms. At that stage, you will have two credit cards in rotation which also will help increase your credit rating.

I wish you the best of luck, Allan. You can do this.

Got a question for Erica? Send her an email.

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