A while ago, a mutual friend of ours admitted that he had ruined his credit and wanted to begin rebuilding it through obtaining a secure credit card. I advised him on opening up a secure credit card because most banks keep the amount of the credit line, for instance $500, in a savings account as collateral for extending credit to a person who is a less than credit worthy. A secure credit card is similar to a prepaid Visa gift card, but it’s reported to the credit bureaus as an actual credit card which helps build a positive payment history, providing on-time payments are made.
To my astonishment, he was declined a secure credit card through a large financial institution. His credit was so poor, the bank wouldn’t extend him the line of credit even with depositing the total amount of the credit line into a bank account. He was flummoxed and wasn’t sure what to do next. Knowing that his credit was so poor, I did a little investigating and realized that his next best hope would be to approach his own bank, a credit union, to see if they could help him out. It turns out that they were able extend a credit card to him, and it wasn’t even a secure one at that.
Would this help anyone who’s credit is in shambles? It depends, but a few tips to follow if you’ve had this happen to you:
- Approach your own bank about a secured credit card. They might be able to work something out with you if you’ve been a customer for a while and have a good banking history.
- Open a bank account at a credit union, and then apply for a credit card – credit unions are sometimes more accommodating.
- Forgo the credit card altogether and fix your finances!
My third point is important; if your credit is really terrible, it might be better to work on the negative existing accounts than to open yet another one, even if it is a secure credit card account. In his case, it might have been better to not open another account just for the plain fact that he’s having difficulty managing his money and his credit. As you can imagine what happened next….he maxed out his card and is now back to his old habit of making minimum payments and not seeing the balances drop. Unfortunately, some people need to experience great pain before changing their ways, even after a friendly lecture on personal finance!
Do you know of someone who was turned down on a secure credit card offer? What would you recommend to a friend struggling to get their finances in order?