Whether you have no credit or want to rebuild a bad credit report, using secured credit cards can help. However, you will need some cash to start the process.
What are secured credit cards? Secured credit cards are cards that require you to deposit a certain amount of money into a checking or savings account to use as collateral against the card. They look and work just like a regular credit card, and over time can lead to unsecured cards with higher limits.
They offer many of the same benefits as unsecured cards. You can use them for anything that requires a credit card. You can use them to make purchases, make hotel reservations, serve as car rental reservations, etc.
The difference is that you will be loading your own money, rather than borrowing against a line of credit authorized by the financial institution that issued the card. In other words, they are loans made against the money in your account.
Generally, secured card issuers will request 100% – 200% of the desired credit limit at the time of approval.
Before you sign up for a secured card, read the fine print. Make sure your secured card issuer reports to all three major credit bureaus each month. Find out how your account will be reported to the credit bureaus. If it will report as “secured,” it’s a better idea to choose another card issuer that doesn’t report your account this way.
Secured cards can be a relatively easy way to establish or rebuild your credit. Once you start using your secured card, you’ll be rebuilding your credit history. Make sure you use it responsibly, and then make payments on time. Making and paying for purchases each month can have a positive impact on your credit report.
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