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The Best Secured Credit Cards

Wednesday, December 6th

What Are the Best Secured Credit Cards?

Secured credit cards are designed for people who have poor or limited credit history or those who have had credit problems in the past. A secured credit card requires a cash deposit to be made, which acts as collateral for the cardholder's credit line. The credit limit on a secured credit card is often equal to the amount of the cash deposit, and it is an excellent way for people to establish or rebuild their credit. In this article, we will describe secured credit cards with paragraph headings.

How Do Secured Credit Cards Work?

Secured credit cards require a cash deposit to be made as collateral. This deposit is used to cover any charges made on the card in case the cardholder defaults on payments. The amount of the deposit is typically equal to the credit limit on the card. For example, if a cardholder makes a $500 deposit, they will have a credit limit of $500.

Who Should Get a Secured Credit Card?

Secured credit cards are an excellent option for people who have no credit history or a poor credit score. They are also a great choice for those who have had credit problems in the past and need to rebuild their credit. Secured credit cards can also be a good option for someone who wants to learn how to use credit responsibly without the risk of getting into debt.

What are the Benefits of Secured Credit Cards?

Secured credit cards offer several benefits, including:

  • They are an excellent way to establish or rebuild credit.
  • They can be used to make purchases online or in-store, just like traditional credit cards.
  • They are often easier to obtain than traditional credit cards.
  • They can help you learn how to use credit responsibly.
  • They often offer lower interest rates and fees than unsecured credit cards for people with poor credit.

What are the Downsides of Secured Credit Cards?

While secured credit cards offer many benefits, there are also some downsides to consider, including:

  • The deposit required to open a secured credit card can be a barrier for some people.
  • The credit limit is often limited to the amount of the deposit.
  • The interest rates and fees on secured credit cards can be higher than traditional credit cards.
  • Secured credit cards may have fewer rewards or benefits than traditional credit cards.

How to Use a Secured Credit Card to Build Credit?

To use a secured credit card to build credit, you need to use it responsibly. Here are some tips on how to use a secured credit card to build credit:

  • Use the card to make small purchases that you can afford to pay off each month.
  • Pay your bill on time and in full each month.
  • Keep your credit utilization rate low by not using all of your available credit.
  • Monitor your credit score regularly to see how your credit is improving.

How to Choose the Right Secured Credit Card?

When choosing a secured credit card, there are several factors to consider, including:

  • The interest rates and fees.
  • The credit limit and deposit requirements.
  • The rewards and benefits offered.
  • The issuer's reputation and customer service.
  • The opportunity to upgrade to an unsecured credit card in the future.

Secured credit cards are an excellent option for people who need to establish or rebuild their credit. They offer several benefits, including lower interest rates and fees than unsecured credit cards, and they can help you learn how to use credit responsibly. By using a secured credit card responsibly, you can improve your credit score and eventually qualify for traditional credit cards with higher credit limits and more rewards and benefits.

When choosing a secured credit card, be sure to consider the interest rates, fees, credit limit, and deposit requirements to find the best card for your needs.

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A secured credit card is an option for people who don't qualify for a traditional credit card. It requires the consumer to make a deposit, usually as a transfer from their checking or savings, and the amount of that deposit is used to "secure" the card and set as the credit limit. Card users have to pay off their purchases each month: those payments aren't deducted from the deposit. Once the card holder has demonstrated a history of responsible use, usually 6 months to a year, the card issuer will return the deposit and possibly offer a higher limit on an unsecured card.
Definitely: these cards exist specifically for that type of situation. You can use a secured card to build up your credit history, so that later on you qualify for a traditional credit card. Using a secured credit card can also help you be eligible to rent an apartment or take out an auto loan, as you establish your financial trustworthiness.
It's a great way to build up your credit history, to qualify for a regular credit card later on. Plus, many transactions today require a credit card, secured or not: shopping online and renting a car, to name a couple. Think of a secured credit card as a stepping stone to better things!
That depends on the card you choose and how much you want to deposit. You can find secured cards with deposit limits as high as $3,000, but do you have that amount available to put down on the card? Your spending limit will more likely be what you can afford to part with temporarily, until your deposit is returned to you later on.
Definitely not. They're actually a very reliable way for people with no credit history or a bad credit score to build up their profile and enable themselves to qualify for more credit later in life. However, they're a lot more restrictive than a traditional credit card, so they still need to be used wisely.
Yes. You still need to pay your balance in full each month - not with your deposit but with "new" money - because you'll pay interest fees if you don't. Those fees can be as high as 30% APR, so it's in your best interests (no pun intended) to only use your card to buy what you know you can pay off completely at the end of the billing cycle.
Sometimes. There are secured credit cards with no annual fees, but you'll have to read the terms and conditions carefully to ensure that the one you're considering won't charge you to use it.
The approval (or rejection) should be instantaneous, once you hit the submit button for your online application. However, getting your deposit transferred to the card issuer can take a few business days. This isn't a process that can be done in a hurry, but it shouldn't take longer than a few weeks to get everything in place and your credit card in hand.

How a Secured Credit Card Can Help Rebuild Your Credit

If you've had some tough financial times you're probably experiencing a lot of hesitancy from creditors when it comes to approving your car or home loan application, a new credit card or even small business loan. Creditors want to see that you can spend responsibly and very importantly, that your monthly payments will show up on-time and as expected.

There are several ways to improve your credit but obtaining a secured credit card is one place to start. Here's why:

  • If your old credit cards have been closed, due to bankruptcy, poor spending or an erratic payment history, you'll have a hard time applying for a new one. Secured credit cards give almost anyone access to a Visa or MasterCard. The key to a secured credit card is a cash collateral deposit, typically the amount of credit you'll be granted, minus fees. However, once you've proven that you can spend responsibly, sometimes up to 12 to 18 months or less, these companies will upgrade the card to a more traditional line of credit. In turn, your new line of credit will appear on your credit history and will reflect positively.
  • Using your secured credit card wisely will improve your credit score and history as well as open doors to a better credit card in the future. One with fewer annual fees and a much lower interest rate. When you have one or more open credit cards, which reflect positive spending, it opens the door for additional creditors to lend for bigger ticket items.

Once you've obtained a secured credit card and a line of credit it's imperative you continue to prove your credit worthiness with the following steps:

  • Always, always, always make your monthly payment on time. Actually, shoot for at least a week before the due date to make sure any delays will not stop your payment from arriving on time. Making on-time minimum credit card payments consistently has a significant impact on your credit score and how future lenders will view your credit worthiness.
  • Don't exceed your credit limit even once. In fact, try to stay within a third of the available credit. Creditors are quick to report credit limit violations to the credit agencies and this will instantly stand out to future creditors. Utilizing only a portion of your available credit is most favorable. If at all possible, make attempts to pay off your balance each month to demonstrate responsible spending.

If you're working to improve your credit score start with a secured credit card and, from the start, make every effort to demonstrate responsible spending to earn and keep a line of credit. Payments must be sent early each month and avoid utilizing the full line of credit for best results.

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