The Surprising Credit Card Trend That’s Helping People Build Good Credit

Tuesday, October 31st, 2017

It used to be that many people hadn’t heard of secured credit cards. If you said the words “credit card,” folks assumed you were talking about a regular, unsecured credit card, and didn’t even know there was another kind. However, these days secured cards are making a huge splash, and more and more people are signing up for them.

What exactly is a secured credit card, you might be asking. A secured credit card is a card that allows people with poor credit, limited credit, or no credit to get a credit card. Since these people have no borrowing history, or a bad history, lenders might be reluctant to extend them a line of credit. So they ask potential borrowers to put down a collateral payment as a deposit, and then the credit card issuer gives them a credit card with a credit limit equal to the deposit.

By doing this, the credit card issuer is protected in case the borrower defaults. However, the cardholder has a chance to prove that they are creditworthy, by using the card and paying off the debt as scheduled. This behavior is reported to credit bureaus, which will note the regular payment info and therefore cause the borrower’s credit score to improve.

Many uses for secured cards

This is one way that young people with no credit history are establishing credit, as well as a way for people with damaged credit to rebuild their credit score. It can be very difficult to get a credit card if you’ve never had one before, as in the case of a young person, or if you have bad credit because of unemployment, divorce, illness, or another reason.

Having bad credit or no credit is nothing to be ashamed of; many people are in the same boat. Secured credit cards are a useful stepping-stone back to good credit, and more people are taking advantage of them. After a certain period of regular payments, credit card issuers may convert the secured credit card to an unsecured account and release the original deposit into the account as a statement credit.

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