secured credit card question

[sunset]

We filed chapter 7 in Feb. 09, and discharged a few months ago. I want to start rebuilding credit, but just don't want to pay the huge fees. My credit union is willing to give me a secured card with no annual fee, a fixed 14.9% rate, and it reports to all three bureaus. The catch is, it will report it as a secured card.

Some sites say this is OK. Others say to avoid this like the plaque. Does anyone really know if it's detrimental to rebuilding if it reports as secured? Does it really make a difference as long as I use it a little, and pay it off every month? Does anyone know if the lenders really look down that much on a credit reporting that's good if it's secured?

Sorry for all the questions!

Thanks for any advice. I just want to make sure that I don't make a bad thing worse.

[StartingOver08]

Did your CU give you a time line as to when the security reference would be deleted? For example, sometimes if you pay x months on time then the secured portion is released to you and the card becomes unsecured (x is dependent upon the credit issuer - I have seen 12 to 24 months as fairly common).

I would think that the utilization ratio would impact your score more heavily then the fact that the card starts out as a secured card. Check the credit boards for more detailed rebuilding information. One such board is here: www.creditinfocenter.com

[MSbklawyer]

I'm not an expert on credit rebuilding. To me, credit is for buying a house and not much else. And if you already have one, what do you need credit for?

But if you must, go with one of those cards that specialize in post bk folks. Orchard Bank, I think, is one. The interest will be high as a cat's back, but that will motivate you to pay your balance every month.

[Intoodeep80]

Not necessarily true about the Orchard card....I applied and was approved ($300 limit) 1 week post discharge. Percentage rate 14.99%. And at that time, my FICO scores were around the low 400's!!

Now they are up to around 650 with just 6 months of having a credit card doing that. The Orchard card is definately a great choice for rebuilding your credit, and I am proof!

[liz417]

Orchard would only approve me for a secured card too, so I heard that Capital One was BK friendly, so I applied and was approve instantly! There a $39 annual fee, zero percent interest until sometime in 2010, they'll also review your account in 3 months and increase your limit if you want. Orchard is pretty good, I just didn't want to pay the fees for a secured card.

[sunset]

Thanks for all the great info. The credit union will not ever turn it into an unsecured card. I was told I would have to reapply for an unsecured card after a year of making payments on time. I don't have verifiable income, as I sell on Ebay. I can show the money going into my account on bank statements, but they won't accept that, so I may be stuck with a secured card for a while. My husband has the income, but I don't want him on the cards as I want to build my own credit back up.

As for only needing credit to buy a house, that's exactly why I need to start building up. We were $150,000 upside down on our house, so the judge wouldn't reaffirm the loan and we let the house go. We need to save for the next 3 years everything we can and rebuild our credit so we can buy something again.

The Orchards card that some of you have mentioned, do you know if it requires proof of income for the secured card, and will they ever unsecure it if I pay it off every month early?

I'll check the credit rebuilding section of this forum as well. Thanks again for all the advice! I really appreciate it.

[liz417]

At both Orchard and Capital One I only had to put down my annual income.

[ForumReader]

Not necessarily true about the Orchard card....I applied and was approved ($300 limit) 1 week post discharge. Percentage rate 14.99%. And at that time, my FICO scores were around the low 400's!!

Now they are up to around 650 with just 6 months of having a credit card doing that. The Orchard card is definately a great choice for rebuilding your credit, and I am proof!

Is your OC secured or unsecured? Just wondering.

[Intoodeep80]

Is your OC secured or unsecured? Just wondering.

Every card I have is un-secured, including the Orchard Bank.

[Never_Again]

With what Orchard appears to charge in fees, they can stand to give you a 14.99% interest rate.

On a $300 balance, the interest if you carried a balance of the credit limit would be $3.75 per month. I the rate was 24.99%, it would be $6.25. Substantially more percentage wise, but in terms of real dollars, not a huge difference.

Still, when you take the $175.00 in fees that seem to be the norm with them for a first time card holder, and figure on even if you carried the full $300 balance for a year (at the 14.99% rate) is a whopping 73%!!! For two, the effective rate is over 113% for the two years!! (figuring a $69.00 second year annual fee.)

Keep in mind that is if you carried the full $300 balance every month. If you carried less balance per month, the rate is even worse!

Make good financial decisions. Paying high service fees to rebuild credit is generally not one of those!

[jadams]

Most of the Orchard offers I've seen do not have $175 fees like you mentioned.

My HSBC card (same bank as Orchard and Household) is 14.9% with a $59 annual fee. But with 2% cash back I've already banked $12 just by putting my utilities and Netflix on it and doing an auto pay from my bank account.

I expect at a minimum to get $25 for the year, making the effective annual fee $34. I have no intent of revolving.

For bringing my score from dangerously low (I run a business and a merchant account to process credit cards is required, but also depends on your credit) to a FICO that's not good but won't get my merchant account cancelled -- I think it's $34 well spent.

I also recently established a secured card with my credit union. No fees. I've been using that one for my regular in-person transactions (walmart, grocery store, etc.) and transfer from my share checking to the Visa to clear the balance at the end of the week.

I'm not concerned with "how quickly can I get my FICO back up and start charging things again", but I do consider it important to reestablish some history so I can have a normal life post-Bankruptcy.

Credit is a consideration when establishing utilities, moving to a new home (landlord credit screens, possible future mortgage), and applying for many jobs. In our present society completely abandoning credit is not realistic for most people. Bad credit closes a lot of opportunities.

As an example my landlord has decided to install a new heating system that will require tenants to establish their own gas accounts (currently heat is provided in rent). Without some positive credit that's potentially a large deposit required. When I called at the beginning of the year I was told to expect a minimum of $500. I would consider putting large deposits down on utilities to be a bad financial decision. Having that $500 in my savings account for an emergency is much better.

For these things I think reestablishing one or two very small accounts ($300/$500 limits) for the small amount I paid in fees is worth it. With time it will provide a sufficient history -- and I don't have room to get into trouble.

[Intoodeep80]

With what Orchard appears to charge in fees, they can stand to give you a 14.99% interest rate.

On a $300 balance, the interest if you carried a balance of the credit limit would be $3.75 per month. I the rate was 24.99%, it would be $6.25. Substantially more percentage wise, but in terms of real dollars, not a huge difference.

Still, when you take the $175.00 in fees that seem to be the norm with them for a first time card holder, and figure on even if you carried the full $300 balance for a year (at the 14.99% rate) is a whopping 73%!!! For two, the effective rate is over 113% for the two years!! (figuring a $69.00 second year annual fee.)

Keep in mind that is if you carried the full $300 balance every month. If you carried less balance per month, the rate is even worse!

Make good financial decisions. Paying high service fees to rebuild credit is generally not one of those!

I dont know where you get those numbers, but my Orchard Bank annual fee is $59/year. I paid it in full on my first payment.

[jennordhavn]

I dont know where you get those numbers, but my Orchard Bank annual fee is $59/year. I paid it in full on my first payment.

Me too!