Using a Secured Credit Card to Rebuild Credit

Friday, April 18th, 2014
Updated: April 18th, 2014
The content is accurate at the time of publication and is subject to change.

Secured credit cards can be your second chance or first credit opportunity. Don’t disregard them when looking for a credit card to improve or build your credit.

The emergence of prepaid cards has made it easier to get some benefits of plastic but established credit still matters. The purchase of a house or a car is good demonstration of how important it is. If you have bad credit or no credit, your loan application will be denied or if not, interest rate will frustrate you.

This is where secured credit cards come in. Secured cards are a tool to practice on and demonstrate your ability to manage a bigger credit line. Unlike unsecured credit cards, the secured cards typically require a minimum cash deposit to establish a credit line. The minimum deposit is obligatory and anything you put above will increase your credit limit accordingly. Say, you put down a $300 deposit, you’ll have a credit limit of $300, add $100 more to the deposit and you will get a $400 credit limit. Remember that the down payment is not used to pay off monthly charges, you will still need to pay all monthly bills. This initial deposit is the bank’s insurance in case you do not pay your bills.

The best, and the most important, thing about secured credit cards is that the issuers report your payment behavior to the three main credit bureaus – Equifax, TransUnion, and Experian. This means that paying your bills on time can, over time, raise your credit score. That is the value of a secured credit card. But it should be emphasized again and again, that you should be consistent and timely in paying your bills.

However, there still are things you should pay your attention to when applying for a secured credit card. Make sure that secured credit card you choose will, in fact, report to the three main credit bureaus. If it does not, you are wasting your time because your goal is establishing good credit. Now check the fees. Not all secured cards have the same fees, so you may want to shop around. Interest rates also vary from lowest to highest.

It would be smart to know the security deposit terms as well. The credit card issuers have different policies regarding returning your security deposit when you close the account.

Be careful to avoid secured cards that do not have a payment grace period. Without this grace period you will pay interest on any charge you make from the moment your card is swiped. You won’t be able to avoid paying interest without grace period.

All these cautions are not meant to scare you away from using a secured credit card to rebuild your credit. On the contrary, it gives you the knowledge to avoid potential problems and to safely move on towards perfect credit score.

All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.

Latest Secured Credit Card News

Sunday, March 1st, 2020

Secured credit cards are credit cards that are supported by a money deposit of about $200-$1000 paid upfront. This amount is used as collateral for issuers and usually equals to the future credit line. This type of card can be extremely welcome if you are a beginner at credit issues or for some reason have to rebuild your credit almost from scratch.

Sunday, February 9th, 2020

Are you new to finance and want to find out what to start building your credit history with? Or maybe you’ve had hard times under your belt and now have to rebuild your credit score bit by bit? Then, probably you’ve already stumbled on some information about secured credit cards and prepaid cards.

Thursday, October 25th, 2018

Secured credit cards have been increasing in popularity over the last several years, and for good reason. For folks who have no credit history, limited credit history, or a poor credit score, a secured card offers a path toward financial wellness and a healthy credit score.

Wednesday, December 6th, 2017

Anyone with a credit card, debit card, prepaid card, or secured credit card will be able to pay for transit tickets in London and other major cities without having to deal with paper tickets or cash, thanks to innovative new payment solutions from Visa.

Wednesday, July 5th, 2017

Young people often get a bad reputation for being irresponsible with money, but a recent survey shows that in fact, today’s young folks may actually be savvier and more responsible with credit than their parents.

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