One of the toughest times to get a credit card and begin your credit history is when you have no credit at all. The trouble is, you often need a credit card to start building a good credit history, but you also need good credit history to get approved for credit cards. The best way to solve this catch-22 is by getting a secured credit card. If you can’t get approved for a traditional credit card, a secured credit card is an alternative you should consider.
What’s a Secured Credit Card?
What makes a secured credit card different from “regular” credit cards is that you will make a deposit to be approved for the secure credit card. This deposit works like a collateral for the purchases you make using the card. If you do not pay your monthly payment, the card issuer keeps your deposit. Therefore, as long as you keep your account in good standing, your credit card issuer will return your deposit to you after a certain period of months or when you close your account.
The credit limit on your secured credit card normally is equal to your security deposit. In some cases, your credit limit can be bigger than the deposit.
You can use the secured credit card like you use any other credit card. Swipe it for purchases up to your credit limit and make on-time payments toward your balance each month.
Why Secured Credit Card A Good Thing
- You can easily get approved for a secured credit card with little credit history.
- They typically report to credit bureaus which you need in order to establish good credit.
- Since payments are included in your credit report, paying the bills on time will help improve your credit score. After building your credit score, you may be able to qualify for a traditional credit card.
- Your security deposit is used only in the event of a defaulted payment, otherwise it will remain until the bank decides to give it back to you.
- Some secured credit cards place your deposit in an interest-bearing savings account. Depending on the interest rate and the amount of time your deposit remains in the account, you might be able to earn a few bucks.
Is a Secured Credit Card Worth It?
A secured credit card can go a long way in helping you build a good credit score. When you can’t get a traditional credit card, a secured credit card is the best choice for improving your credit and qualifying for other options.