Ways to Build or Rebuild Credit

Credit history is based on two different factors: revolving credit, such as credit cards, and installment loans, like personal loans. Borrowers who seek to rebuild credit are advised to consider both options –  revolving credit and installment loans. At the same time, borrowers with credit problems and histories of late or missed payments are viewed as high risk. Borrowers with poor credit are usually offered outrageous interest rates or are turned down by financial institutions because of their poor credit history. That is why borrowers resort to secured loan Canada. Borrowers who offer collateral increase their chances of getting approved. Many financial institutions are willing to offer a lower interest rate to borrowers who offer collateral. Lower interest charges make payments more manageable and thus, borrowers find it easier to keep up with their monthly payments. Regular payments, on the other hand, help rebuild credit. Secured loans and credit cards are offered to persons with less-than-perfect credit, and they are easier to obtain. Borrowers with poor credit have a better chance of getting approved for a secured loan if they offer collateral to the lender. Thus, financial institutions take less risk. People who apply for a secured credit card deposit money with the credit card company. The issuer can seize the deposit if the borrower is unable to keep up with payments.

Another way to build or rebuild credit is to use a secured or prepaid credit card. Secured credit cards are offered by mainstream banks, many credit unions, credit card companies, and other financial institutions. Some banks offer unsecured credit cards only. Many banks started offering unsecured credit cards with higher fees and interest rates and lower limits. Still, it pays to shop around because using a secured credit card is a good way to rebuild credit. People who have gone through some major event such as loss of job, prolonged illness, or divorce usually apply for a secured credit card. To this, borrowers are advised to make sure the card issuer reports to all credit reporting agencies. If they do not, borrowers lose a major benefit.

As a rule, if you start getting offers for unsecured credit cards after having made on-time payments for several months, you will know that the card issuer is reporting. Inquire whether the bank flags the report as a prepaid or secured credit card because this will be a deterrent to establishing or rebuilding credit. How long does it take before financial institutions offer you an unsecured credit card? Credit card companies and banks want to keep their clients, which is why they will offer you an unsecured credit card provided that you make regular payments. In most cases, it takes one year to improve your credit score, and you are eligible to apply for an unsecured credit card.