What is a Secured Credit Card and How Can You Use It to Boost Your Credit Score?
Credit cards are a pretty essential part of daily life nowadays – if you want to make online purchases, book flights, even rent a car you will need to have a credit card available. Having a credit card is also a good way to build good credit. However, if you have never had a credit card before (and thus do not have a credit score) or need to repair a poor credit history, then a secured credit card may be an option for you.
What is a secured credit card?
A secured credit card is essentially the same as a regular credit card, except that it requires a cash deposit as collateral before your application is approved. This cash deposit then becomes the credit line for the credit card account. For example, if you put down a $500 payment as collateral, you will then have a $500 credit limit on your new secured credit card. Your credit card company will be able to reimburse you your deposit once you have proven that you can successfully manage the credit line.
What are the charges associated with a secured credit card?
Some credit card companies and banks offer secured credit cards that do have fees. However, generally speaking, it is best to avoid any secured cards that have fees. A quick search online should provide you with a plethora of fee-free options.
Do all banks offer secured credit cards?
No. The current trend in banking is to stay away from secured credit cards, and towards ‘unsecured’ cards with higher interest rates and fees. That being said, there are still a lot of providers in the market so make sure you do your research.
What problems should I watch out for?
Pay attention to important items such as interest rates, fees and the minimum required deposit for collateral. These costs can creep up on you if you are not vigilant and can eat away at your savings.
How can I use the secured card to improve my credit rating?
Keep up activity on the card. Buy a few things here and there (like groceries, bills), and make sure to pay off your card in full every month. As mentioned earlier, once you have used the card responsibly for an extended period of time (usually 6-12 months) your credit score will increase and your credit card company will likely upgrade you to an unsecured card (and reimburse you your deposit). Once you are upgraded to an unsecured card, maintain your good credit habits and your credit score will continue to rise.