Credit Unions and Secured Cards Can Offer Credit Access to People With Low Credit Scores

Learn About Credit HistoryMany consumers have been barred from the lending system due to the ramifications of prolonged unemployment, foreclosure, or a bankruptcy filing in recent months. While many Americans have been spared from the damage these actions can inflict upon a consumer's financial history, some consumers have nevertheless struggled to make payments on credit cards and mortgages.

This can be particularly damaging to a consumer's finances, since credit history is one of the most important factors in determining a credit score. Lenders attempt to assess an individual's risk before extending new funds, and consumers who've defaulted on an account or made spotty payments are typically viewed as more likely to repeat these past actions.

However, many consumers are now working to get their finances in order. This trend has been reflected in the overall declines that many lenders have seen in delinquencies and defaults in recent months. Due to this renewed responsibility from consumers, credit card lenders have introduced a number of new plastic options to offer struggling borrowers access to lines of credit.

This has included introducing new secured credit cards, or offering options with higher-than-average interest rates, to consumers who have been turned away from traditional card offers. Recent research suggests that card issuers are now sending out more applications and mailings to these struggling consumers, and as a result, this group now has a number of avenues they can pursue to rehabilitate their finances.

Secured credit cards are one option that's becoming increasingly popular. Since cards allow consumers to tie funds from their bank accounts to the cards, they offer greater protection for those whose monthly earnings and borrowing histories have recently been experiencing problems.

For example, a secured card traditionally gives consumers the option of setting aside between $250 and $500 for a new credit card account, with a corresponding credit limit. While similar to debit cards, these options allow consumers to build credit, since the transactional information from these accounts is sent to major credit bureaus.

However, not every secured credit card reports such data to credit bureaus. Consumers should therefore be careful to examine the fine print on credit card offers to determine whether the card they're considering does so. Consumer advocates also suggest that individuals look for hidden fees, because some banks and lenders charge security deposits to the card, according to a report by The New York Times.

Consumers can also benefit from talking with credit unions, which may be more willing to work with struggling borrowers. In recent months, enrollment at these institutions has risen, as more individuals look to avoid annual fees and other charges that major banks have embraced.

Credit unions may also be more likely to consider alternative credit scores and offer free credit counseling. In addition, they tend to provide more products for those with a past history of late payment and default, The New York Times says.

"Certainly, many credit unions have credit builder or rebuilder loans, often structured as a loan with a built-in savings component so that a person gradually builds up funds that can act as partial collateral," Clifford Rosenthal, the president of the National Federation of Community Development Credit Unions, told the newspaper.

By taking the time to choose an option that allows for more security, consumers who have been shut out of the system may be able to start borrowing again. However, since many black marks -- such as bankruptcy, foreclosure, and missed payments -- can linger on credit reports for as long as a decade, these individuals should be patient and remember that establishing a solid credit history takes time and effort.


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