Why are secured cards never discussed as a means to rebuild credit?

[backtoschool]

I see a lot of post mentioning how secured cards are "reported", that is not the issue, it is how secured cards are scored that matter. Assuming the card is noted as secured (most do), FICO scores secured credit cards less than regular credit. In essence, a secured card is not really credit at all. Does it have a positive effect on your credit report, sure, insofar as positive from nothing is better than nothing. Just like with student loans, even though student loans appear on your credit report, they have a negligible affect on your credit rating.
The other reason secured accounts are mentioned as frequently is that the debtor needs to have something to secure it with; most chapter 7 debtors emerge from BK with little or no savings. So, at least from the get go, they have no way of getting such a card.

Also, let's put credit history in perspective regarding closing accounts. It is absolutely a good idea to close accounts that charge an annual fee if you can't get them to stop. If you have a Orchard annual fee card for 8 months, and then close it; that is going to have a NEGLIGIBLE affect on your credit; because the timeframe is so short. Where you start running into credit history problems and it negatively affecting your score is when you close an account that is 10 years old, or 20 years old. A BK essentially restarts the clock on your credit history, so closing a 6 month or 12 month old account to avoid an annual fee is not a big deal.

Wow, I had no idea that secured cards were scored differently by FICO. Is there something in the number or the line that lets FICO know the account is a secured one if it isn't reporting as secured?

I have read in various places that cards from subprime lenders are scored differently than cards from "prime" lenders like AMEX. Is this true?

[backtoschool]

So, HHM's post really got me thinking about secured cards. I realized I really don't know enough about them and how they will help/hurt my fico score. I am an analyst who loves to research things, so I went and did some research on secured cards and am posting my findings to this thread.

HHM is right that most secured cards are not going to help your score as much as unsecured cards will. Here are some more details:

1. There is a difference between pre-paid cards and secured cards. (I am sure everyone probably knows this, but I am adding this in here for the archives in case somebody doesn't know....) Pre-paid cards will not report to the three bureaus. Secured cards will report secured credit limits and monthly payments to the bureaus, but there is a large range of differences in the way secured cards report. Here are the differences to watch out for.

a. Some secured cards do not report to the credit bureaus at all. These would be cards issued by small banks, etc.
b. Some secured cards report to the credit bureaus that they are secured cards. Secured cards that report as secured cards will be considered an underwriting risk in most underwriting models, because those models will assume that the person has a secured card because they are unable to get an equivalent unsecured card. In theory, if a model is just looking at numbers, the "secured" notation might not matter, but in this day and age, there are no models that only look at raw numbers so that is a moot point.

c. A few secured cards, offered by major banks, will not report as secured cards. These should have the same positive effect as unsecured cards, but these cards also are harder to get, and do not accept everyone who applies for them. An example would be secured cards offered by Citibank, Bank of America, etc. People right out of bankruptcy are not going to qualify and get approved for these cards anyway. These secured cards are really for people with no credit history, just starting out rather than people with a bad credit history that they are trying to repair.

2. All secured cards will be seen as riskier for manual underwriting purposes. Every secured card will have at least some notation that the card is secured and when you are being manually reviewed for a car loan or a home loan, those cards will be seen as riskier because they imply the inability to get unsecured credit. Most manual underwriting models will ignore or discount the positive value of secured cards as HHM said. In the same vein, having a lot of subprime cards like First Premier, or Orchard Bank will also be seen as negative in manual underwriting models. Having subprime cards will imply to a manual underwriting model that the person cannot get prime cards.

The take away: Only a few secured cards out there will really help your credit rebuilding. If you get a secured card, make sure it is from a prime bank, and reports to all three credit bureaus without a "secured" flag in the reporting. As for "credit rebuilding" cards, the same applies. Use them to rebuild and then replace them with prime cards when your credit is sufficiently improved to be able to get a prime card.

[LSUTiger32]

LSU, I don't think anyone on this planet or any other would disagree that you are avoiding credit. What is the mystery in that statement? There is no negative tone at all implied, in fact I put smilies in my post so you would know that there was no negative tone.

It is not financially feasible to rebuild from scratch without establishing positive trade lines. These can be secured credit cards, but they don't have to be. Savings earn less than 1.5%, so it might be financially better to get an unsecured card and put that money in an investment that earns better than a basic savings account.

I am not going to list all the benefits of credit cards. It is not necessary. Even if there were no benefits to credit cards, and I was only getting them because I like plastic rectangles in bright colors, my point is that it is my decision to rebuild my credit post bk. My decision is as sound, and as thought out as the decisions of any credit avoiding David Ramsey fan. There is not a superior choice here, or even a more sound choice. For some, (who didn't reaffirm a house in their bk like you did), getting positive trade lines will help them get a house and a car.

Anyway, people who stand on the street corners handing out bibles, or who go door to door evangelizing and trying to convert people are very committed and convinced that what they are doing is the right thing and that everyone else is wrong and needs "saving". But those people have thick skins, and do not take it personally if someone doesn't answer the door, or walks to the other side of the street to avoid the preaching.

Oh yeah, no doubt I am not getting a credit card. I guess it is avoidance, I am avoiding credit like I avoid crack cocaine.

Does risk ever matter to you? I mean put everything on credit cards, make the minimum payment and invest all of your income. That sounds great except for the insane amount of risk you would be taking. Defintely spare us that list of benefits of credit cards. I can turn on the TV and watch the sissy vikings if I want to see how wonderful they are! Let me see if I can make this clear:

I AM TRYING TO GIVE PEOPLE OPTIONS. I IN NO WAY THINK I AM SUPERIOR TO ANYONE NOR DO I THINK MY WAY IS THE ONLY WAY.

Yes, I am in a cult and trying to save everyone! On a side note, I guess I read this stuff wrong. I mean I feel like someone is telling me.....hey, you are a freaking idiotic moron and I despise you but .

Must be me.

[LSUTiger32]

I see a lot of post mentioning how secured cards are "reported", that is not the issue, it is how secured cards are scored that matter. Assuming the card is noted as secured (most do), FICO scores secured credit cards less than regular credit. In essence, a secured card is not really credit at all. Does it have a positive effect on your credit report, sure, insofar as positive from nothing is better than nothing. Just like with student loans, even though student loans appear on your credit report, they have a negligible affect on your credit rating.
The other reason secured accounts are not mentioned as frequently is that the debtor needs to have something to secure it with; most chapter 7 debtors emerge from BK with little or no savings. So, at least from the get go, they have no way of getting such a card.

Why am I surprised that they wouldn't count secured cards. I don't know for sure how anyone knows anything about a FICO score since it's the most random thing on the planet but still this is sad.

As far as securing the card, if someone can't come up with $300 or $500 to secure a credit card after filing then they have bigger fish to fry. Of course, they got that $600 a month car loan two days past discharge so they gotta pay that first!

[backtoschool]

Oh yeah, no doubt I am not getting a credit card. I guess it is avoidance, I am avoiding credit like I avoid crack cocaine.

Does risk ever matter to you? I mean put everything on credit cards, make the minimum payment and invest all of your income. That sounds great except for the insane amount of risk you would be taking. Defintely spare us that list of benefits of credit cards. I can turn on the TV and watch the sissy vikings if I want to see how wonderful they are! Let me see if I can make this clear:

I AM TRYING TO GIVE PEOPLE OPTIONS. I IN NO WAY THINK I AM SUPERIOR TO ANYONE NOR DO I THINK MY WAY IS THE ONLY WAY.

Yes, I am in a cult and trying to save everyone! On a side note, I guess I read this stuff wrong. I mean I feel like someone is telling me.....hey, you are a freaking idiotic moron and I despise you but .

Must be me.

LSU, you know I don't despise you or think you are an idiot. I think you are a very intelligent man who is working hard to rebuild post bk, and is very passionate about avoiding credit.

I do think that you think your way is the only way however. I post to your threads to give a different perspective than yours, and show that there are many ways to be financially stable and healthy post bk.

Often people will take your posts as argumentative because you build false arguments. No one suggested that people should max out their cards, pay minimum, and invest the money. I said that people should take the money they were going to deposit to create a secured card, and invest it instead and get an unsecured card. My suggestion would be to not keep balances on the card and certainly pay more than minimum.

[CCsAreEvil]

I don't know for sure how anyone knows anything about a FICO score since it's the most random thing on the planet but still this is sad.

What are you saying? FICO is "not" random. It's a model created by Fair Isaac, blah blah... Unfortunately, they pretty much have a monopoly on how to gauge credit risk. About 90% of companies use their model. It is by no means a great/perfect system. The big 3 credit bureaus all use the FICO model and give differing scores because their database info does not match 100% for each person (across the 3 CRs). I wish we could rid of this system... and there have been attempts to replace it (or at least give FICO competition).

What's your solution for rebuilding a FICO score without credit again? Or do you think we should care less about our scores? Sadly, most of the home and auto insurance I've had to apply for check FICO scores. I know some states don't allow companies do this but that's not the case for me. Also, I don't know why employers get to check our credit reports but they get to (I hate that). So sadly, FICO is a necessary "evil"!

As far as securing the card, if someone can't come up with $300 or $500 to secure a credit card after filing then they have bigger fish to fry. Of course, they got that $600 a month car loan two days past discharge so they gotta pay that first!

Wow.. that's mean to say. You are throwing everyone into the bucket of getting a huge car loan/payment right after BK.

[LSUTiger32]

LSU, you know I don't despise you or think you are an idiot. I think you are a very intelligent man who is working hard to rebuild post bk, and is very passionate about avoiding credit.

I do think that you think your way is the only way however. I post to your threads to give a different perspective than yours, and show that there are many ways to be financially stable and healthy post bk.

Often people will take your posts as argumentative because you build false arguments. No one suggested that people should max out their cards, pay minimum, and invest the money. I said that people should take the money they were going to deposit to create a secured card, and invest it instead and get an unsecured card. My suggestion would be to not keep balances on the card and certainly pay more than minimum.

I know that and I know how you feel now I just still get the feeling that my way isn't good enough. We post for the same reason, to give people options. Do you seriously believe though that I am living on the fringe of society because I don't want a credit card? Also, you accuse me of false arguments yet you say that you can't rent cars or stay in hotels without a credit card????

Are you Barack Obama? HEHEHEHEHEHEHE!! Just playing.....but in all seriousness you should heed some of your own words towards me.

[NowImDownInIt]

MyFICO cites CardHub as its educational reference. CardHub states that a secured card is reported and scored the same as an unsecured card here:

http://education.cardhub.com/secured-cards/

Are secured credit cards reported to the major credit bureaus?

Yes. The activity on secured cards is reported to the major credit bureaus in the same way the activity on all other credit cards is reported. In fact, when a lender reviews your credit report they can not tell whether you have a secured credit card or an unsecured credit card.

Also, there is a part on the MyFICO educational center that debunks the myth that you actually need to utilize any of the credit you are given for a positive effect on your report/score. This can be found here:

http://www.myfico.com/crediteducation/credit-card/secured-or-unsecured.aspx

Do I need to actually use my secured card in order to improve my credit?

No, you do not. After credit trouble, some people may be worried that they won’t be able to make their payments on their secured credit card, or may not trust themselves to use their credit card responsibly. Fortunately, you can open a secured credit card account, activate it, and still rebuild your credit even if you don’t use it. Even though there is no activity on your account, you’re still reported to the credit bureaus as being on time with your payments (you can’t be late since you didn’t have any to make in the first place). Since you will constantly be current on your payments, you will continue to be reported as being in good standing on your account, therefore improving your credit score. The only thing you have to do is remember to pay your membership fee once a year, and the rest will take care of itself.

[backtoschool]

Secured cards are scored the same re raw numbers, but are considered "riskier" in most models so if there is any manual underwriting, the secured card is going to be less preferable. I made mention of this in my above post. Very few loans, secured or unsecured are gotten by simply looking at raw numbers. Most modeling takes into account other factors, (such as various risks) and secured cards do not fare as well in these additional models.

[CCsAreEvil]

In my opinion, this is going to be a "big IF" here.... IF you have learned your lesson from BK (yeah, I do know there are some people who did not file BK because of cc debt, too but this can still pertain to them), then I really believe the unsecured CC is the way to go. I know there are some people who think it's impossible for someone to be responsible and learn from lessons, but some people actually do.

Yes, secured cards are your own money, and it's forcing you to use your own money to create your own "credit limit". Why do I need to use my own money locked in a secured account to rebuild my credit? Also, the more I think about it, who really cares what the credit limit is. My "unsecured" cc has a limit of $300. I'd have to research more, but I bet having 2-3 unsecured lines, each having a CL of $300 would have a better affect on your FICO score than a single card with a $25k limit. The number of credit lines does make a difference in the scoring. Also, 0% utilization is still 0% if you have a $300 CL or a $100,000 CL.

It appears more and more that even just by letting time pass (while having credit lines without even using your credit), is a decent factor in your FICO score recovering. I played with the online simulator from myfico and just "paying my credit cards on time" (basically/really, just have the credit lines open but no need to USE the cards), for 1-2 years would supposedly boost my scores back over 700 again.

I know some people are having a hard time obtaining unsecured cards, so just open a secured $300 line.. no need for some HUGE credit line.. you are not going to charge against it anyways, right? Then after some time (6 months to 1 year), try to apply for an unsecured line -or- have that secure line converted to unsecured so you can get your $300 back. There are even some that only require a minimum of $200 to open a secured line.

[LSUTiger32]

MyFICO cites CardHub as its educational reference. CardHub states that a secured card is reported and scored the same as an unsecured card here:

http://education.cardhub.com/secured-cards/

Also, there is a part on the MyFICO educational center that debunks the myth that you actually need to utilize any of the credit you are given for a positive effect on your report/score. This can be found here:

http://www.myfico.com/crediteducatio...unsecured.aspx

EXCELLENT FIND! There's that answer. Get a secured card and rebuild your credit......no risk necessary.

[backtoschool]

EXCELLENT FIND! There's that answer. Get a secured card and rebuild your credit......no risk necessary.

Most secured cards report as secured. See my post from a couple of days ago. And most proprietary score models (and pretty much all creditors have some proprietary features to their models in this climate) penalize for secured cards. So there is risk to a secured card.

[LSUTiger32]

Most secured cards report as secured. See my post from a couple of days ago. And most proprietary score models (and pretty much all creditors have some proprietary features to their models in this climate) penalize for secured cards. So there is risk to a secured card.

Risk? Of what, possibly maybe who knows might lower you score a point or two over a secured card? According to that article it is not scored differently at all for FICO scores. Sure auto lenders may have their own thing, as do others but you cannot say with any confidence that they penalize for secured cards. Matter of fact, they could like secured cards better because like my previous post it shows them that you are not engaging in the same behaviors again.

See......you call me to mat on my "inaccuracies" so I am going to do the same. Show me any proof that a secured card penalizes you......I dare ya!

[backtoschool]

Risk? Of what, possibly maybe who knows might lower you score a point or two over a secured card? According to that article it is not scored differently at all for FICO scores. Sure auto lenders may have their own thing, as do others but you cannot say with any confidence that they penalize for secured cards. See......you call me to mat on my "inaccuracies" so I am going to do the same. Show me any proof that a secured card penalizes you......I dare ya!

Good Morning LSU!

Actually, this is really going to fuel a response, but the creditors that will penalize for a secured card, are unsecured credit card lenders.

[LSUTiger32]

Good Morning LSU!

Actually, this is really going to fuel a response, but the creditors that will penalize for a secured card, are unsecured credit card lenders.

Good morning!!!

Oh even better! That's the best news I have heard all day!!! I might get a secured card now! LOL!