topic Rebuilding with a secure credit card? in General Credit Topics

Rebuilding with a secure credit card?

Anonymous — Sat, 11 Jul 2015 15:12:21 GMT

Hi everyone,

I am trying to assist my parents in re-building their credit with a secure credit card.

My question is - does it have to be a large amount that their "limit" is for it to really affect their credit?

For example, there is a secured credit card that allows you to either do a $49, $99, or $200 deposit to open up your secure credit card. Will it help their credit more if they open up with a $200 limit versus a $49?

Thank you!

Re: Rebuilding with a secure credit card?

Revelate — Sat, 11 Jul 2015 15:58:40 GMT

@Anonymous wrote:
Hi everyone,

I am trying to assist my parents in re-building their credit with a secure credit card.

My question is - does it have to be a large amount that their "limit" is for it to really affect their credit?

For example, there is a secured credit card that allows you to either do a $49, $99, or $200 deposit to open up your secure credit card. Will it help their credit more if they open up with a $200 limit versus a $49?

Thank you!

Doesn't matter for FICO; you can always manage the reported balance by simply prepaying the statement to let a little bit report but not very much if you're trying to optimize their reports. $5/100 is the same as $500/$10000 as an example.

Re: Rebuilding with a secure credit card?

takeshi74 — Sun, 12 Jul 2015 16:09:00 GMT

@Anonymous wrote:
My question is - does it have to be a large amount that their "limit" is for it to really affect their credit?

It's not really the limit itself that matters but the reported utilization (limits do factor into utilization) which falls under Amounts Owed below.

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

General advice is do not exceed 30%. However, lower is generally better and there is also the recommendation to allow only one balance to report at 10% or less when appyling to eke out every possible point. In order to do this at least 2-3 cards are suggested.

@Anonymous wrote:
For example, there is a secured credit card that allows you to either do a $49, $99, or $200 deposit to open up your secure credit card. Will it help their credit more if they open up with a $200 limit versus a $49?

It is generally easier to maintain lower reported utilization with a higher credit limit. Take this example: let's say that you have a $49 balance.

On a card with a $49 limit that's 100% uilization which means that there is a double ding for high utilization and having the card maxed.

On a card with a $99 limit that's 49% utiliztion which is still high (over 30%) but at least not maxed.

On a card with a $200 limit that's 25% which is under the suggested 30% max but still far from ideal.

Granted, one can make multiple payments and pay down the balance prior to report date to reduce reported utilization but it will probably take much more effort with a lower limit.

Utilization is easy to calculate. It's simply balance(s)/limit(s). Both individual and overall utilization matter.

Depending on their spend and willingness to carefully maintain the reported balanance it's certianly possible that they may want to deposit much more than $200. However, at the same time, if they have no cards they may want to open 2-3 if possible as that will help with rebuilding. They can certainly start with just one but it will probably take longer. Either way, rebuilding will be a long, slow process.

If they have any derogs then hit the Rebuilding subforum and carefully research before taking action to see what can be done about those derogs. Derogs tend to have a major impact and will tend to hold one's scores down as long as they are on reports.

Re: Rebuilding with a secure credit card?

Anonymous — Mon, 13 Jul 2015 08:00:32 GMT

This post ought to guide you in the right direction.

http://ficoforums.myfico.com/t5/General-Credit-Topics/What-to-know-before-rebuilding-your-credit-with-secured-credit/td-p/4125687