Improving Your Credit with Secured Credit Cards

If you have poor credit, you can actually use credit cards to help improve it. Secured credit cards that is.

The idea of getting a secured credit card, which isn’t really credit at all but a card you place funds on ahead of time, may not seem like an attractive option to you. After all, you wanted a credit card so you can actually purchase things on credit and then pay for it later, right?

Well, the fact is you may not qualify for a true credit card if you have poor credit or no credit history. In this case, a secured credit card may be a necessary stepping stone for improving your credit first so you can obtain a traditional unsecured credit card. Even if you don’t think you want a credit card for making purchases, they are still needed for many of life’s every day happenings. For example, you need a credit card to rent a car, to make a hotel reservation, and to make plane reservations.  Some stores even require customers to present a credit card when writing a check. Therefore, having a credit card is almost a necessity.

Of course, building your credit is also a necessity if you ever hope to get a mortgage or obtain a loan for a car. This is where secured credit cards come in.

With a secured credit card, you establish your spending limit by sending money in ahead of time. If you send in $1,000, you can spend $1,000 or less if the card only allows you to spend a percentage of what you send. Some credit card companies put a cap on how much you can send to the card. In addition, some reward customers who are in good standing by actually providing a bit of true credit that is above and beyond what has been deposited ahead of time. This usually doesn’t happen, however, until after you have had the card for a period of time.

Keep in mind that the interest rates on secured credit cards are usually quite high and there are generally many fees associated with the card. Therefore, it is certainly no bargain and should not be considered a long-term solution. Rather, the secured credit card is a means to an end. Nonetheless, there are a few things to look out for when selecting a secured credit card. For example, avoid secured credit cards that charge an application fee or a processing fee. While most, if not all, charge an annual fee, you should be able to find one without an application fee or processing fee if you shop around enough.

To make sure the secured credit card is really worthwhile, you also need to apply for a card that reports to the major credit reporting agencies. If the card does not, it will not serve to build and improve your credit score. You also need to consider how long the card keeps your deposit once you close the account. Some keep your money for a few months in order to cover any extra charges that may hit the account after it has been closed.

When using your secured credit card, make sure to only make purchases you can pay off each month. That way, your payments will always be on time and your credit rating will improve. Once your credit rating is built up, which should take about one year of responsible usage, it is time to start applying for unsecured credit cards and say goodbye to your secured one.