What is a Secured Credit Card?

A secured credit card is a major credit card that requires a cash deposit to secure the credit line for that account. If you deposit $500 in the FDIC-insured account; you can charge up to $500. 

The deposit also acts as a guarantee the credit card issuer will be protected if you are unable to make your payments. With some secured credit cards you can qualify without a credit check.

Benefits of Secured Credit Cards

Rebuild credit with secured credit cards. Secured credit can help you rebuild credit and get you on track to a good credit score. 

Credit cards, if managed well, can be a great way to build a solid credit history and improve scores. Credit cards give you a means to establish a good payment history. Payment history is imperative to having good credit as it accounts for 35% of your overall credit score. 

Secured credit cards are a perfect answer for consumers who are unable to qualify for unsecured credit cards. A secured credit card may be the only method to establish or re-establish credit. Plus, with some credit card issuers you can qualify without a credit check.

Rebuilding Credit With a Secured Credit Card

Consumers with bad credit should engage in credit repair and debt management in order to rebuild credit. But this alone will not help rebuild credit. If you want to improve your credit score and rebuild credit, you need current positive credit reporting in your credit files. 

Secured credit cards will give your credit report open, active revolving credit lines on your credit reports. This will give you the opportunity to show you handle credit responsibly. Managing credit responsibly will re-establish credit history and improve scores.

How to Manage Secured Credit Cards

Secured credit cards must be managed the same as unsecured credit cards. Just because you have secured  the credit card with a deposit, does not mean you can skip payments or make late payments. 

Late payments on a secured credit card will have the same negative effect as regular, unsecured credit cards.

Top 3 Management Tips for Secured Cards:

• Keep your account balances low. This means whatever your credit limit, do not charge over 30% of the available limit. The only exception is that you pay your balance in full each month.
• Avoid late payments at all costs. Late payments will be reported to the credit bureaus in the same manner a late payment on an unsecured credit card would be reported.
• Use your credit card at least once a month. Rebuilding credit requires you actively use credit as well as timely repay credit obligations. Even if you only make a small purchase each month and pay it in full; this counts as using your credit card and will help rebuild credit

Quickly Raise Your Credit Score

First, get a few secured credit cards. Second, make small purchases. Third, pay the account in full or at least pay more than the minimum payment, on time, every month. By simply adding new revolving credit your credit scores will get an immediate bump up. Having several revolving lines of credit such as secured credit cards is going to allow you to raise your credit scores quickly. Making timely payments on several secured credit cards along with keeping account balances low will quickly raise your credit scores.

Treat Secured Credit Cards The Same As Unsecured Cards

Secured cards for bad credit are a convenient, easy way to rebuild credit. Don't think avoiding credit cards is the best thing to do when you want to rebuild credit. Consider secured credit cards for bad credit as long as you are ready to:

• Charge in small amounts so you can pay off the entire balance each month. If you do carry a balance, keep it to ten percent or less of your available credit limit.
• Charge only what you can afford and pay off the entire balance.
• Pay your bill on time, every time. Doing so shows good money and credit management and will help raise your credit score.

Why you need good credit

Whether you’re just starting out with little to no credit or need to re-establish a good credit history, secured cards offer a simple and fast way to build or rebuild credit.

Having good credit is necessary to a healthy financial outlook just as having a solid savings plan. There are some things most people cannot do without a credit history, such as finance a home, car or pay a large tuition bill. Major purchases more than likely require a good credit history. Even emergencies like auto repair, medical expenses, home repair or even relocation can require you have a solid credit history.

Adding good credit to a limited credit file or credit file with negative information is an excellent way to make yourself more favorable to banks and lenders. Once you get credit it may take up to 6 months of on-time payments to establish a credit score if you currently do not have one. If your credit score needs a boost 6 months of on-time payments will help to improve scores.

Key to Good Credit Scores

Maintain low balances in order to see the most improvement in scores and never max out your credit cards. The best measurement of how much to spend on a credit card is no more than 30% of your available credit limit.

You can’t go wrong if you practice keeping account balances to less than 30% of the credit limit. And, always make payments on time or pay in full each month if possible.