“Shopping around for the best rates and terms can help you save money in the long run,” said Griffin. Compare fees across multiple card providers. On top of your deposit, some secured cards will ask for a fee when opening your account. And just like when you’re hunting for a standard credit card, you should also take the card’s APR and fees, including any annual fees or late payment fees, into account. Since you’ll likely need to fund the card right away, make sure you can afford the deposit. When shopping for a secured card, you’ll want to consider the cards limits, fees, benefits, credit-reporting features and some other key factors.įirst, look at the secured card’s credit limit and security deposit requirements. Compare secured cards to find the right option for you Here’s how to use a secured card as a tool to improve your credit: 1. However, some might let you earn rewards or a welcome bonus. Most credit card issuers offer secured credit cards with similar options and features. How to use a secured card to build credit Or if you’re new to building credit, a secured credit card can help you establish a positive credit history, said Perez. If your credit score or history is less than ideal to qualify for these cards, a secured credit card will still require a hard credit inquiry but comes with fewer approval requirements to better your chances. Most rewards credit cards require a credit score of 670 or better. “If you have a low credit score, limited credit history or have experienced financial difficulties in the past, you may find it difficult to get approved for a traditional unsecured credit card.” “Secured credit cards are a good option for individuals who are new to credit or have poor credit,” said Perez. If you show responsible habits, such as making on-time payments, the card issuer may consider refunding your security deposit and upgrading you to an unsecured credit card that may come with rewards. “By monitoring your credit score regularly, you can get a sense of how your credit activity is impacting your score over time,” said Bryan Perez, founder of the Credit Advisors Group, a credit repair company in Altamonte Springs, Florida. But this works both ways - if you miss a payment, it will reflect negatively on your credit report and can drag down your score. “FICO scores consider secured cards the same way as unsecured credit cards,” said Tommy Lee, Senior Director of Scores and Analytics at FICO. Most secured cards report your activity to the three major credit bureaus - Experian, TransUnion and Equifax - so you can build up your credit profile. Like a standard credit card, you can use a secured card to purchase. “If you don’t pay the bill as agreed, it doesn’t protect you from loss or negative impacts on your credit history.” But the money you’re using to secure your credit line protects the bank, not you, in case you can’t pay your bill, Griffin said. You can usually increase your limit by depositing more funds.Ī common misperception about secured cards is that “secured” means that these cards are secure or safe in some way for the user, said Rod Griffin, senior director of consumer education and advocacy at credit reporting company Experian. For instance, if your deposit is $250, your credit line will also generally be $250. The big difference between secured and traditional credit cards is that secured credit cards require a security deposit, which often serves as your credit limit. What is a secured card, and how does it work?Ī secured card offers an easier path to credit approval.
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