Secured Credit Cards: A Comprehensive Guide
If you have a bad credit history or no credit history at all, then getting approved for a traditional credit card can be challenging. However, there is an alternative option available- the secured credit card. Secured cards are becoming increasingly popular among consumers as they offer many benefits that help to build up a solid credit score over time.
What is a Secured Credit Card?
A secured credit card works similar to a traditional unsecured one except that it requires collateral in the form of a cash deposit. The amount deposited acts as security and determines your line of credit. For instance, if you deposit $500, your limit will be set at $500.
How Does It Work?
When you use your secured card for purchases, the issuer reports this activity to the three major consumer reporting agencies (Experian, TransUnion and Equifax). This means that timely payments will reflect positively on your report and improve your score over time.
It’s important to note that not all issuers report to these agencies which means that some people may miss out on building their score even though they’re making their payments on time. Therefore, before choosing any secured card ensure that it reports payment activities to these bureaus.
Benefits of Secured Credit Cards
The primary benefit of using secured cards is improving your overall financial standing by establishing or rebuilding your creditworthiness. Moreover, most issuers offer additional perks such as online account management services where users can monitor their balances and make payments conveniently via mobile apps or websites.
Additionally, some providers also offer rewards programs for users who consistently make payments on time which can include cashback bonuses or points redeemable towards travel expenses.
Who Should Get One?
Anyone looking to rebuild their poor credit rating should consider getting one. They are also great options for those with little-to-no-credit history since they provide an opportunity for them to establish good payment habits without being penalized for their lack of credit experience.
However, it’s important to note that while secured cards are an excellent tool for building or repairing one’s credit history, they’re not a long-term solution. It’s crucial to eventually transition to unsecured cards once your credit score has improved significantly enough to be approved.
Final Thoughts
If you’re looking to rebuild your poor credit rating or establish good payment habits, then a secured credit card is worth considering. They provide ample opportunities for improving your score and come with many benefits such as rewards programs and online account management services. However, ensure that you choose an issuer who reports timely payments to the three major bureaus and eventually transition into using an unsecured card once your score improves.