It's a vicious circle, to say the least.
To apply for credit, you need a credit history. And to build a credit record, you need credit. Likewise, if you've run into trouble with credit in the past, it's hard to qualify for credit.
But there is a way to establish - or re-establish - your creditworthiness: secured credit cards. These cards, like Dupaco Community Credit Union's Share Secured Visa, trade access to credit for your commitment to keep a certain amount of money in a savings account, according to the Home & Family Finance Resource Center.
"This helps members start repairing their credit and helps others establish credit and start building credit," says Jill Rothenberger, senior lending consultant at Dupaco.
Here's what you should know about Dupaco's Share Secured Visa:
- Members who use this card take advantage of Dupaco's low interest rate and no annual fees.
- The line of credit is determined through a conversation with a Dupaco employee. The member deposits those funds into a savings account, which are then frozen. (Any funds above that amount in the savings account can be used as the member chooses.)
- While many members open their secured credit card with a $500 line of credit, Rothenberger urges them to increase that amount to $1,000 or $2,000 - if they can afford it. "The higher the credit limit, the more capacity it gives them," she says. "And capacity helps build or improve their credit score, because it makes up 30 percent of your score." Capacity works in your favor when you stay below 20 percent of your available line of credit. That's why a $500 credit limit doesn't give you much wiggle room.
- Members can use their credit card for gas, grocery and other purchases - as long as they can afford to pay off that amount each month, on time. "If you're using it to compensate for paying for things that you can't afford, you're going down the wrong road," Rothenberger says.
- Aim to use the secured credit card for at least one year - while staying below 20 percent capacity and making payments in full - to establish a positive credit history.
- Opening a bunch of credit cards at one time will have a negative impact on your credit score. You typically should have no more than one to two new credit opens a year, Rothenberger says.
By Emily Kittle