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Secured Credit Cards To Build Your Credit

Secured Credit Cards To Build Your Credit – Both secured and unsecured credit cards allow you to make purchases whenever you want and pay them off when the bill is due so you don’t incur interest. The main difference is in the initial setup – secured credit cards require you to make a deposit to start using the card whereas unsecured credit cards do not. Both types of cards have advantages and disadvantages, and choosing the right one depends on your unique financial situation and credit history. This post walks you through the differences between secured and unsecured credit cards and how secured credit cards work to help you make the right choice for your personal finances.

Secured credit cards, like secured loans, require you to provide collateral when opening an account. With a secured credit card, you make a deposit that can be returned to the issuing bank or financial institution. Your deposit will always equal the account’s credit limit – for example, a $500 security deposit will give you a $500 credit limit. After a certain period of time, some card issuers may give you the option to increase your credit limit by adding to your initial deposit or when you make a certain amount of on-time payments.[1]

Secured Credit Cards To Build Your Credit

Secured Credit Cards To Build Your Credit

Because deposits reduce the risk of financial institutions, you can more easily qualify for a secured credit card even if you have bad credit or a limited credit history. Therefore, secured cards are a great option for people looking to build credit.

Dbs Secured Credit Card: Get Approved Now With These Top Tips!

Note that secured credit cards are different from prepaid cards. While both require a deposit before you can use them, prepaid cards do not trigger a credit check and do not affect your credit score in any way. This means you can’t use a prepaid card to build credit. On the other hand, your secured card issuer will report the payments you make — whether they are on time, late, or not at all — which can affect your credit.[2]

Unsecured credit cards do not require a deposit when you open an account. The card issuer sets a maximum credit limit that you can borrow without requiring you to provide any collateral on your part. Instead, banks run credit checks and use data about your credit score, credit history, income, and other financial factors to approve or deny your application, as well as to determine credit limits and other requirements.[1]

Not all lenders have the same application requirements. So, you may want to check with your credit card company for specific approval criteria before applying for a new card. However, you usually have to meet three general requirements to qualify for a secured credit card:

If you’re worried that your credit score or credit history may be a barrier to getting a secured card, consider a card that’s easy to ask about.

How To Get A Secured Credit Card

If you provide a secured credit card with a deposit, you usually get your money back when you close the account or convert it to an unsecured credit card. However, if you can’t pay your account in default, the card issuer can keep your deposit and use it to pay off your debt. Remember: Deposits serve as collateral, so don’t rely on them to pay your monthly bills if you’re late. Otherwise, you may risk losing your deposit and having your credit card account closed.

You can apply for many unsecured credit cards online. However, unsecured credit cards have stricter approval criteria. Again, each lender sets its own terms and conditions, but many unsecured options require excellent credit or a good credit score. While you may qualify for some unsecured cards with reasonable or even no credit, these products may have less attractive terms and APRs.[1]

Although secured and unsecured credit cards differ in some ways, both can help you build credit if used responsibly. If you have bad credit, a secured credit card can also help rebuild credit.

Secured Credit Cards To Build Your Credit

If you want to use a secured card to build credit, making your monthly payments on time is critical. Late payments on any credit card can harm your credit score by affecting your payment history. In the case of secured cards, your security deposit may also be forfeited.

Strengthen Your Finances

Credit utilization calculates how much of your credit limit you are using at any given time. For good credit health, you should keep that percentage below 30%. Due to the nature of secured credit cards having low limits, you should be careful not to exceed the percentage. For example, if your credit limit is $300, spending more than $90 will cause you to exceed the recommended credit utilization ratio.[1]

Any time you carry a balance on a credit card — whether secured or unsecured — you may have to pay interest charges. This will also increase your credit utilization rate. Therefore, paying off your balance in full every month makes financial sense. Whether you want to build credit or get out of debt, a budget plays an important role in financial health. Decide how much you can afford to pay by the due date, and then limit your spending to that amount for the month.[1]

No matter what type of credit you have, keeping your credit score in check is always a good idea. Some credit cards offer free credit monitoring services. You can also check your credit score for free every year by visiting annualcreditreport.com.[1]

The ideal credit card depends on your specific financial situation, so you may want to consider the following factors when making your decision.

Getting A Secured Credit Card With Bad Credit

No one type of credit card is best for everyone, so make your choice by looking at your financial situation, credit history and overall creditworthiness. While unsecured credit cards tend to be the choice of those who qualify, secured credit cards can help people who need to rebuild or build credit. You can also consider a credit builder loan which can help you improve your credit as well as offer a path to potentially getting a secured credit card in the future.

Ana Gonzalez-Ribeiro, MBA, AFC® is an Accredited Financial Advisor® and Bilingual Personal Finance Author and Educator dedicated to helping communities in need of financial literacy and counseling. His informative articles have been published on various news outlets and websites including Huffington Post, Fidelity, Fox Business News, MSN and Yahoo Finance. He also founded the personal finance and motivation website www.AcetheJourney.com and translated the book Financial Advice for Blue Collar America into Spanish by Kathryn B. Hauer, CFP. Ana teaches Spanish or English personal finance courses for the W!SE (Working In Support of Education) program which teaches workshops for non-profit organizations in NYC.

Our goal is to provide readers with up-to-date, unbiased information on credit, financial health and related topics. This content is based on research and other relevant articles from trusted sources. All content is written by experienced contributors in the financial industry and reviewed by accredited individuals.

Secured Credit Cards To Build Your Credit

Disclaimer: does not provide financial advice. The content of this page provides general consumer information and is not intended to constitute legal, financial, or regulatory guidance. The content presented does not reflect the views of the Issuing Bank. While this information may include references to third party resources or content, it does not endorse or guarantee the accuracy of this third party information. Credit Builder Accounts, secure Visa® Credit Cards, and Level Credit/Rent Track links are advertisements for products. Please consider the publication date of the original content by ni and any related content to better understand the context.

Do Secured Credit Cards Build Credit History?

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