Here’s How A Secured Credit Card Helps You Build Good Credit
If you’ve ever wondered what exactly a “secured” credit card is, or why they’ve become so popular recently, read on to find out how this type of credit card is helping people establish and repair their credit.
Whether you don’t have any credit history at all, or your credit has taken a hit due to divorce, job loss, illness, or some other reason, you might be wishing for a way to begin building, or rebuilding, your credit score.
Secured credit cards, unlike unsecured cards, require you to put down a deposit when you apply for the card. This deposit will then become your credit limit. So, if you put down $200, you will be given a credit card with a $200 limit.
The issuing bank will hold on to the deposit while you use the card and pay off your charges each month. This way, if you default on what you owe, the bank is protected. Your deposit acts as collateral, protecting the bank from liability in case you are unable to pay your debt.
How your credit improves
Meanwhile, the secured card will report your activity to the major credit card bureaus, allowing your score to improve as long as you make your payments by the due date and abide by the cardholder agreement. It takes some time, but eventually, you’ll see your credit improve as you use your secured card.
After using your card regularly for several months, and making all payments on time, your credit limit may be increased. Eventually, your deposit can be refunded to you and you will have the chance to apply for an unsecured credit card.
Repairing your credit, or building a credit history from scratch, can take some time and patience. But having a good credit score is important for many reasons, including getting approved for loans, securing a low interest rate on a mortgage, and renting an apartment. Some employers even check your credit score before offering you a job. A secured credit card is an excellent tool for building the good credit you need.
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