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Secured Credit Cards: Working For and Against You

Secured Credit Cards: Working For and Against You
Secured Credit Cards: Working For and Against You

For those who have poor credit, the idea of being able to attain a credit card that can actually help you to rebuild your credit is certainly appealing. But, before you start applying for just any secured credit card, it is important to understand how they work and how they should be used to improve your credit, not tarnish it further.

What is a Secured Credit Card?

Secured credit cards are charge cards that function just like other credit cards when you purchase something from a retailer; however they are specifically intended to be for individuals with poor credit. Instead of having a traditional lender-provided line of credit, with secured cards users must first make a deposit to establish the given line of credit.

For instance, a $300 deposit will allow you to have a credit card with a $300 limit. By providing a deposit for use of a credit card, the lender is protecting themselves and the user is able to help rebuild their credit with a fully functional credit card.

How Can a Secured Credit Card Boost My Credit?

Most people often ask themselves how opening another credit card can help them to build their credit. Simply opening a secured credit card won’t help you to raise your credit score. Instead, you want to demonstrate to lenders and the credit bureaus that you can manage your finances wisely. This means that you maintain a low balance on your card and that you pay your monthly bill on time. If possible, pay off your card in full each month.

Some secured card lenders will even increase your credit limit without an additional deposit, or convert your credit card into a traditional one if you have demonstrated the ability to manage your secured card wisely.

How Can a Secured Credit Card Hurt My Credit?

Secured credit cards are intended to help those with poor credit keep a minimal balance and pay off their debt each month. This is how one can gain the most from these types of accounts. However, if you begin to miss payments or max out your secured credit card it can actually work against you and bring your credit score down even further.

For that reason, before you apply for a secured credit card, it is recommended that you make sure you are set on improving your credit and can feasibly make the necessarily monthly payments and balance payoffs to truly help your credit.

Secured credit cards are a great way to help improve your credit score and start getting into the good habits that can help to give you credit success in the future. Keep in mind that before you sign up for any credit card, secured or not, that you read through the fine print.

Most secured credit cards have annual fees, late payment penalties and some will even report to the credit bureaus that it is a secured account, which could reflect poorly on you to lenders at a later date.

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