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 with no credit check.

Benefits of Secured Credit Cards

There are several types of secured credit but secured credit cards are a perfect solution for people who are unable to qualify for unsecured credit cards.

Secured credit cards can have several benefits for people who are looking to establish or rebuild their credit. Some of the key benefits include:

• Easier approval. Secured credit cards are typically easier to get approved for than traditional unsecured credit cards, even if you have poor or no credit history.
• Credit-building opportunities. By using a secured credit card responsibly and making on-time payments, you can establish a positive credit history and improve your credit score over time. Payment history is imperative to having good credit as it accounts for 35% of your overall credit score.
• Control over your credit limit. With a secured credit card, you typically have control over your credit limit because it’s determined by the amount of money you put down as a security deposit.
• Rewards. Some secured credit cards offer rewards programs that allow you to earn cash back, points, or other perks for using the card.
• Fraud protection. Like traditional credit cards, secured credit cards offer fraud protection, which means that you won’t be held responsible for unauthorized charges.

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

Making timely payments on several secured credit cards along with keeping account balances low will quickly raise your credit scores. Here is what you can do:

• 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. 

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 using secured credit cards 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 good credit.

Good credit is as necessary for a healthy financial outlook as is saving money. 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.