You are attempting to establish credit but do not qualify for a regular credit card – will obtaining a secured card help? If you have never had credit or need to repair a poor credit history a secured credit card may be the only route for you to establish credit or re-establish credit. First, exactly what is a secured credit card? A secured card requires a cash deposit which will be used as collateral for any charges you make with the card. In many cases, if you deposit $400 your credit line will be $400. Depending upon the issuing bank’s policies, this line of credit may be increased with additional deposits. You might be asking why get a card if you have the money to use as collateral? – to establish credit!
Additionally, in many instances you need to have a credit card to make a hotel or plane reservation, just dealing in cash simply will not work. Therefore, if you are unable to qualify for a regular credit card a secured credit card may be your only option.
If you decide to obtain a secured credit card, shop around for the best rates and lowest fees. A secured credit card typically will have an annual fee but try to find a bank that does not require an application fee or monthly insurance fees. Check with the bank where you currently do business if you already have a checking or savings account. Also, many credit unions offer secured credit cards to their members with no application fees and lower interest rates.
To make the best use of your secured credit card to establish credit, charge a few small items per month and make sure you pay the bill on time each month. A late payment will defeat your efforts of establishing good credit. When using your secured card as with any credit card make sure you pay off the balance each month so you do not incur any interest charges.
Usually after approximately one year of using a secured credit card responsibly, no late payments and not charging over your established limit, the issuing bank may offer you an unsecured credit card in place of your secured card. If this happens your initial deposit used as collateral will be returned possibly even with interest. While a year might seem like a long time, if a secured credit card is the only way for you to establish credit, a year with the issuing bank having your deposit as collateral will be a relatively small price to pay. Remember you are using a secured credit card as a stepping stone to obtaining a regular credit card and establishing a credit history therefore allowing your deposit to sit at the issuing bank will definitely be worth it.
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