Using secured credit cards to build credit

Secured credit cards can build your credit
Building up your credit has become even more important over the past few years as credit is harder to come by. Secured credit cards can help people with little credit history build credit and even save some from bad credit.
When lenders look at a credit report, one of the things they want to see is that you have a history of repaying loans in a timely manner. If you’ve never taken out a loan before or have only been using credit for a short time, lenders often lack the information they need to decide how creditworthy you are. In cases like this, a secured credit card might be your only option.

In the same way, if you had a rough period where your bills went unpaid or were only paid sporadically, it can be difficult to convince lenders that you are going to pay off any new loans. If you do manage to get a loan or credit card while having these black marks on your credit report, you will likely have to pay high fees and high interest rates.

Rebuilding your credit
There is a way to build — or rebuild — your credit. A secured credit card works like a debit card. Once you are approved, you make a deposit into an account linked to this new credit card. The card you receive will have a Visa or MasterCard logo on it, but you will not be able to charge more than the amount you previously deposited onto the card.

Over time, as you continue to make payments and stay within your credit limit, you are building credit history and improving your credit score.

Be a careful consumer
Some secured credit cards have fees. Also, ensure the card issuer reports your account to at least one of the three main credit bureaus so it can help improve your credit score. It is important to research the card the same way you would an unsecured card. Also, check whether your current bank or credit union might have a secured credit card to offer you.


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