If you have been researching credit card options for consumers with low credit, then you have probably heard about secured credit cards. These cards require a deposit of $200-$500 before you can use them. Unfortunately, much of the news about secured credit cards is negative. They generally have very high interest rates and very low credit limits.
However, if you are looking to rebuild your credit score (or build a credit score in the first place), secured credit cards can be very useful. They just have to be used in the correct way.
1. The first step is to make sure that your finances are in order. This will ensure that you won’t need to rely on your credit card to purchase necessities or pay bills. In fact, a good mindset might be to not think of your secured credit card as a credit card at all – simply think of it as a tool to help you improve your credit score. If you don’t have money in the bank to pay off the credit card balance immediately, then the best policy is simply not to use your card at all.
2. Another way to keep your spending under control is to use the credit card for small purchases that you would make with cash if you didn’t have a card. This could mean a fast-food lunch, a convenience store snack or a morning cup of coffee. These purchases, however small, will count towards your credit score because the credit card issuer will report any activity at all, not matter how small. As long as you make your payments on-time, you score will go up.
3. If you have been using your secured credit card for several months, you may start to find offers for non-secured cards in your mailbox. For many secured credit card users, this is the first clue that their credit score is rising. If your secured credit card account is in good standing and if you are making your payments on time, this should generally take several months to a year. You can also check your credit score online to make sure that it is headed in the right direction.
4. Check with your credit card issuer when you are signing up for a secured credit card. Some issuers flag the card as a secured credit card when they report to the credit score bureaus. This can have a negative impact on your credit score, although you should still be able to raise your overall score by making on-time payments.
5. A good credit score is not only useful for people who want to get new credit cards. Other loans, for a house, a car or education, can be much easier to get if you have a good credit score. For this reason, sticking with the small-purchase, quick-pay-off strategy can be useful whether you have a secured credit card or a standard credit card. If you aren’t sure that you can control your spending, simply sticking with the secured card can be a good idea.
6. A secured credit card is a tool for getting control of your credit score and getting it moving in the right direction. If you are a young person or a new credit card user, simply making smaller purchases and quickly paying them off is all that you need to think about. If you are someone who is trying to rebuild your credit, there is more to consider. You will have to be making enough money so that making purchases on credit is unnecessary. After all, you will be using the secured credit cards on purchases that you usually make with cash, so having the cash in the bank is vitally important.
[...] To improve their score, people with low credit will be able to use secured credit cards. These cards, designed for people with low credit scores who want to bring their score up, are [...]