The Barrington Financial Group, Inc.

There are two basic types of credit cards available today, secured and unsecured. Secured cards are for people who have bad credit and need to establish or re-establish good credit. Lenders that provide these cards require that the consumer put up a security deposit, often equal to the amount of your credit limit. The deposit is usually put into a savings account or other secured instrument with the bank. After you have demonstrated to the bank that you are a good credit risk by using the credit account and making payments on time, they refund the deposit to you. The time period can vary from bank to bank, but it is usually between 6 months to a year.

Do these secured cards help your credit? That's a tricky answer. If you have very bad credit and do not have any open accounts on your credit report, then yes, they help your credit score. On the other hand, most lenders in the mortgage industry do not like to see secured cards on credit reports because it shows that the consumer was, in fact, a high credit risk. If you have several open accounts already on your credit report, say an auto loan, a consumer loan, and one secured credit card, then it does not improve your credit score to get another secured card. Lenders like to see at lease two or three open trade lines but they do not like to see secured credit cards or cards lower than $1,000.00 in credit limit. Many underwriting guidelines consider cards lower than $1,000.00 in credit limit (secured or unsecured) as high risk cards and, in fact, the credit scoring system keeps your score lower for having these kinds of cards. It's like waiving a sign that says, "I'm a bad risk, don't lend me money." The ONLY use for a secured credit card is for reestablishing credit when the person has absolutely NO credit at all. Other than that, STAY AWAY FROM THEM!

Let's talk about unsecured credit cards. There are good and bad unsecured credit cards in the market. Several banks target people with bad credit for their LOW LIMIT cards. They call them unsecured because technically they are not secured. However, beware! These cards have very high junk fees attached to them, and by the time you've finished paying all of these fees, most of your credit line has been taken up, leaving your card with very little available credit. Remember, even though these are unsecured cards, the mortgage lenders still look at them as HIGH RISK cards because of their low limits. With this kind of card, you don?t have a large amount of credit and you don?t even have the option of getting your security deposit back. It?s a lose/lose option.

We do not endorse any of these cards, but I will tell you the only two banks in the market that I have found that do not charge excessive junk fees are Orchard Bank and Capital One. Orchard Bank usually gives a $500.00 limit and Capital One around $300.00 to $500.00. These cards are better to get than the secured cards, but are still considered poor credit cards by lenders. Once your limits are increased to over $1,000.00, then they become a much better credit card to have. These are by far the better cards to get when a person is trying to reestablish their credit. After they have had the cards for a year or so, usually the credit card company raises the limit provided the consumer has never missed a payment. The goal is to have at minimum $1,000.00 credit limit on every card.

Once a person begins to show good credit for 24 months, more and more banks start to consider them for credit cards. Be patient, and before you know it, you will be getting unsecured cards for several thousand dollars or more. This is true even if you have filed bankruptcy. Lenders look at the past 24 months of your credit history very heavily. Even a person out of bankruptcy for over 24 months, and reestablishing credit just after the initial bankruptcy filing, can have good credit scores within those 24 months. This will be discussed in more detail under our "bankruptcy" section.