Secured Credit Cards
Secured credit cards are ideal for people with no credit or damaged credit. If
you’ve never had a credit card and can’t get approved for one elsewhere, a
secured credit card is a great way to build a credit score. On the other hand,
if you have had credit cards and have damaged your credit score by paying late,
not paying, or even claiming bankruptcy this is one of the few ways to rebuild
your damaged credit.
How a Secured Credit Card Works
To qualify for a secured credit card you have to deposit money into an account
as directed by the credit card company (amount varies depending on the company
but expect it to be around $500). It will usually be a savings account but you
won’t have access to that money while you have the card. They use this savings
account as collateral, so if you don’t pay the bills on this credit card they
take away all of the money in your savings account, plus you’ll no longer have
use of that credit card. That’s right, so this means you have to pay off your
purchases on a secured credit card or you will have definite and immediate
consequences. This is why it’s called a secured credit card because they
require you to have money in an account to back up the card making it secure
for the bank to let you use it.
The Benefits of a Secured Credit Card
The upside is after a year or so of responsibly using your secured credit card
(as in paying the bills on time, paying at least the minimum amount or more,
and not going over your secured credit limit) your credit score will improve.
This will mean that soon you can get an unsecured credit card and get back the
money you have in your secured credit card account (the money in the savings
account you haven’t been allowed to touch while you have use of the card).
Also, when your credit score improves you may be able to qualify for better
credit cards, loans, and even a mortgage. Plus the better your credit score the
lower your interest rate will be. Keep in mind it may take more than a year to
get up to an ideal credit score but over time you will see a noticeable
improvement.