Will a secured credit card hurt your credit score?

will-secured-credit-card-hurt-scoresQuestion: Several years ago I experienced life changing events that left me in financial distress. I have had “bad credit” on my report for 7+ years. It seems some of the reports keep showing up even though they are credit cards and 1 loan.

Each year I pull my report it states the report will drop off next year. Then next year comes and it is still there. I have no idea what to do. Can you help?

Because of the above, I haven’t been able to get credit. I have been trying to buy a house my mother built for me but was unable to pay off/put in my name before she died unexpectedly. I know, lesson in procrastination.

Anyway, I have been able to get a secured credit card for 500.00 through my credit union. It is listed as a secured card on my credit report. Will this hurt or help me? How does it impact me either way? Thank you for your help and time you take to educate us. I can’t tell you how much I appreciate you and what you give back to others.

Answer: Just because a negative account becomes obsolete and should be removed from your credit report, the process is not always automatic. In your situation you have the credit report stating the date in which the negative account is due to drop off so all you need to do is contact the credit reporting agencies and let them know to delete the negative account.

I suggest you read “What is the FCRA Compliance Date”. This article will give you some insight on how and when the time period for reporting negative credit accounts begins and ends. Since you have the credit report showing when the account is to be removed contact the credit bureaus:

  1. Make a copy of the credit report
  2. Circle the removal date directly on your credit report to enclose with a letter
  3. Write a letter to the credit bureaus that are reporting the obsolete accounts and request deletions immediately because the FCRA Compliance date for reporting negative credit accounts has passed
  4. Send the letter certified for your records.

This is not a dispute. It is a request for removal of obsolete negative credit accounts. There should not be any issues with the credit bureaus removing obsolete information because if not, they are in violation of the FCRA.

Secured credit cards and credit scores

As to your concerns with secured credit, the only issues I see with a secured credit card is if you do not pay the bill on time or use more than 30% of your available credit limit. With secured credit cards the same rules apply as unsecured. If you want to rebuild or maintain a good credit score you must pay more than the minimum due, if possible, and maintain low utilization.

Whether or not the credit card reports as “secured” is irrelevant. FICO scores do not differentiate between unsecured credit cards and secured credit cards. Regardless of the type of credit card you open, being on time with all of your payments is the most important factor towards rebuilding your credit history.

Other actions you can take is to never max never out your credit cards. The ideal use of your credit cards is no more than 30% of your available credit limit. For you that would translate into keeping your balance to not more than $150 of your $500 credit limit unless you pay in full each month.

With a good payment record and low balances you may be able to convert the secured credit card into a regular, unsecured credit card and in many instances, a secured card opens the door to obtaining multiple traditional credit accounts. The best of luck to you.

 

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