Re-establishing credit may be a secured card away
By Marian Miller King • Bankrate.com

Consumers who have paid off their debt through the debt management program offered by Consumer Credit Counseling Services -- or repaid debts on their  own -- have one more hurdle to clear: rebuilding their credit rating.

Obtaining a secured card is usually a good way to start  and, according to the latest survey by Bankrate.com and by Consumer Action, San Francisco, currently there are a number of new cards from which to choose.

In fact, Consumer Action's survey found 21 secured cards with no application fees, most of which are available nationally. Interest rates range from 9.72 percent to 20.05 percent and annual fees range from $18 to $45.

No application fees for secured cards
"The lack of application fees (among new issuers) is really good news," said Cher McIntyre, Consumer Action's director of advocacy. When the nonprofit consumer group looked at cards in the mid 1980s, many carried very high costs, she added. "There's no reason to pay an application fee when you apply for a secured credit card."

A secured card -- for those whose mailboxes have not been flooded with offers -- is a bank credit card established by depositing money in a bank account. The account serves as security for the card; if the bill isn't paid, the money in the account may be used to cover that debt.

"Although secured cards tend to have higher interest rates and annual fees, they provide a valuable steppingstone," said Linda Sherry, Consumer Action editorial director. "Many people find they can graduate to an unsecured credit card within a year or 18 months."

Not everyone qualifies for secured cards
Getting a secured card is not as easy as it sounds, however. Card companies have different requirements for applicants. All banks accept those with no credit history or no information on file with a major credit bureau.

Some will accept people who have had a bankruptcy as recently as six months to one year before they apply. However, most require that bankruptcies have been discharged by a court. And still others will not consider people with a past bankruptcy.

The typical minimum deposit requirement for secured credit cards is $300 to $500. A handful of issuer require $250 or less.

Many reasons are offered for applicant refusals
Other findings of Consumer Action's recent survey:

• Some banks will not accept people with federal tax liens on their credit reports.
• Secured cards usually have annual fees. On many, these fees are $25 or higher.
• All the surveyed cards offer a credit line of at least 100 percent of the amount you have on deposit. Some offer credit lines of 150 percent to 200 percent more than the deposit.
• Most of the banks allow deposits and credit lines of up to $5,000.

At Consumer Credit Counseling Services (CCCS) office in West Palm Beach, Fla., Susan Seager, vice president of operations and service, said, "Quite a few of the individuals we deal with seek out secured cards if they are going back to using credit cards. It's a fast, easy way to establish a credit line. A debit card is another avenue to re-establish credit."

It's hard to survive without a card
Since so many transactions require credit cards, such as renting cars or securing hotel or airline reservations, many business people who work with CCCS want to have credit re-established as soon as possible. Other consumers will find that bad credit prevents everyday lifestyle choices, such as borrowing money, charging important items, renting an apartment, financing an automobile, getting a mortgage, establishing accounts with utility companies or even getting a job.

What else does it take to re-establish credit gone bad?

There are some problems that can be fixed almost immediately, said Sherry of Consumer Action, simply by paying off debts and changing spending habits. For others, there is no "quick fix."

Steps to re-establishing credit
A few more steps to take to build good credit, according to Consumer Action:

• Open a checking or savings account. This helps prove financial responsibility. It also establishes credibility with potential landlords.
• Consumers with a steady income should try applying for credit with a local business.
• Get a secured card, as suggested. Usually after one year, cardholders can apply for an unsecured card.
• Ask a relative or friend with good credit to co-sign a credit application. After using the credit account responsibly for one year, consumers can apply for credit on their own.

Don't forget to get your credit report
As a final step, make certain you obtain your credit report from all three of the major nationwide credit reporting bureaus. They each charge $8 per copy for a credit report, but they also offer a free copy to people who have been turned down for credit, insurance, employment or a rental apartment because of credit bureau information.

The addresses are: Equifax, Box 105873, Atlanta, GA 30348, 1-800-685-1111; Experian, Box 2104, Allen, TX 75013, 1-800-397-3742; or Trans Union, PO Box 1000, Chester, PA 19022, 1-800-916-8800.

-- Updated: Jan. 07, 2002