Bad Credit? You May Need a Secured Credit Card
Wondering what you can do to improve your bad credit? There are many ways to raise your credit score, but learn how a secured credit card can help. It’s certainly one proven step you might take in establishing credit or rebuilding it. What’s more, you could begin as soon as today!
What Is a Secured Credit Card?
First of all, it’s important to understand how a secured credit card is different. A secured line of credit requires an initial refundable deposit. You provide money upfront, so you’re considered super low-risk. The security deposit serves as collateral against the charges you make.
Can You Incur Interest Charges With Secured Credit Card?
Yes. Secured credit cards users get statements every month. You have to make payments by due dates, and you can carry a balance, thus incurring interest.
Is Your Security Deposit Used for Monthly Payments?
No. That’s not the idea at all. Your initial deposit is there to make you low-risk. It’s there to get your foot into the credit card door. If you have bad credit, it’s likely that credit card companies and other lenders are turning you down left and right. This way, you invest in yourself and the opportunity to raise your credit. No one is taking a huge chance on you.
How Does This Help Me Exactly?
A secured credit card can give you a way to prove yourself when you can’t get approved for a traditional credit card yet. It operates like a real-deal credit card. So, your good financial behavior can shine and help your credit. But your creditor gets to feel safer in lending you money because you’ve put money down with them already.
Most secured credit cards report your utilization and payment history to the three major credit bureaus. But always confirm with the credit company. Your score won’t improve unless they’re reporting!
Why Use a Secured Credit Card?
Bad credit standing in your way as you try to buy a house or a car? Ready for lower interest rates, but feeling stuck? If you use this card responsibly, you could improve your credit score enough to take action regarding your financial goals.
3 Reasons Consumers Use Secured Credit Cards
Here are three ways your credit could benefit from using a secured credit card. Most importantly, you can qualify with imperfect credit. So, you can begin this journey sooner rather than later.
1. Avoid High Costs and Worse Credit
Even if you do land a traditional credit card with your bad credit, the outrageous annual fees and high interest charges could certainly contribute to an even worse credit score. Overall, consumers usually spend less on a security deposit for these types of cards. And your deposit is also refundable. Fees and interest aren’t. These contribute to your credit utilization rate, and as that rises, your score suffers.
2. Small Purchases and Auto-Pay
You’ll be able to pay for purchases as you would with a traditional credit card. Making a few purchases each month and paying them off in full will help your credit. You might even use the secured card to enroll in auto-pay for peace of mind about on-time payments that reflect well on your financial character.
3. Cash Back Rewards and Flexibility
Do your homework because some secured credit cards offer cash back rewards. That’s free money if you’re using your card wisely. You’ll also have the flexibility to use your card for emergency purchases, online reservations, etc.
How Long Does All This Take?
Usually, after a year of on-time payments, you’ll be approved for an unsecured line of credit. Consumers building credit for the first time typically find this a great way to raise their credit score. Those with messy credit history likely won’t have it so easy.
If you need to see a change in half that time, you may require attorney-backed credit repair. Give us a call. We’re happy to chat with you about your needs and goals.
On Your Way
Secured credit cards are definitely an option when it comes to improving credit scores. Best of all, you could be on your way to approval for a better credit card with a higher limit and lower interest rate. As you continue to establish credit or rebuild it after problems in the past, aim to make on-time monthly payments in full.