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How Secured Credit Cards Help You Improve Your Credit Score
How Secured Credit Cards Help You Improve Your Credit Score

How Secured Credit Cards Help You Improve Your Credit Score

Who amongst us hasn’t needed a second chance? Or a first opportunity? For the millions of Americans who were battered by the Great Recession and came out of it with a poor credit score, plus the section of young people who haven’t had a chance to earn and spend money rationally, these are not abstract questions.

What is a secured credit card?

A secured credit card is to basically a moderate extent similar to a debit card but instead of being tied to your checking account, it’s tied instead to a cash deposit you’ve made to “secure” the card. If you put $1,000 into a deposit account with the card issuer towards collateral for the secured credit card, you generally will have a $1,000 credit limit, or your credit limit may be a percentage of that $1,000, your credit limit is still determined by the card issuer. So why go with a secured card? Because unlike debit cards, the companies that offer secured cards generally report to the three major credit bureaus, so on-time payments and good money management behavior will help you build your credit. If you create a history of managing your account responsibility, certain card companies, may even increase your credit line automatically without additional deposits.

How much will a secured card cost me?

As with any credit card it pays to read the terms, rate information, conditions and fine print. Annual fees, application fees, and monthly charges can consume your balance so make sure you shop around to find the best deal. Also, some things like the application fees are occasionally negotiable, so you may want to give it a try and negotiate.

Now the best way to use a secured card to build credit is to pay on time and keep your revolving utilization – the proportion of your balance in relation to the credit limit – as low as possible. Using the card regularly and paying in full will also show that you are a good credit risk. However, advisers warn to shed your secured credit card as soon as possible for unsecured credit. Even though secured cards may seem safer and encourage savings, because of the secured cards tendency to have annual feels and higher interest rates, you may find an unsecured card with better rates and terms. So, use the secured credit card as a stepping stone to build credit and learn responsibility, then move on.

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