Should I open a department store card?

Generally, store cards are a bad idea because they lure you in with that up-front discount, and then the ongoing interest rate is very high. Avoiding these cards is typically a good idea, but the ease in obtaining one may actually be a good thing if you’re having trouble establishing credit. If you have struck out at the local bank, you may want to consider checking with one of the local department stores and see what type of cards they offer. Whatever you do, make sure you find out whether or not they report to the credit bureaus. If they don’t, it will do you no good. If you are approved for their card, you need to be disciplined and use it properly. Don’t treat this new purchasing tool as free money, but only as a means to establish good credit. The limit will probably be low anyway, but you should make an initial purchase with it and subsequently pay the balance off in full. Once the card is active, it should begin to be reported to the credit bureaus. It is now important to maintain a good payment history on this card so your credit history can build upon it.

When All Else Fails If you’ve tried the bank, department store, or even credit card companies directly and failed, not all is lost. Secured credit is a last resort, but it is much easier to obtain than unsecured credit. When a credit card or loan is secured, it means that there is an asset linked to the account that the lender can take if you fail to make payments. When you have a mortgage or auto loan, these are secured loans. If you fail to make payments, the lender will take your house or car in order to satisfy the debt. You can establish the same thing at most banks with a secured credit card. You can pledge money you deposit in an account to secure the credit card. For example, you could obtain a secured credit card with a $500 limit if you put a $500 deposit in the bank that is linked to the card. If you fail to make your credit card payments, the bank takes your deposit. Again, you want to check and be sure that this secured credit is reported to the credit bureaus, but if so, this can be a useful tool to establish that first piece of credit history. After you maintain that account in good standing for a while, you may be able to obtain a regular credit card or loan.

For a list of banks who offer secured credit cards, please visit www.bankrate.com.

 


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