You might be wondering what a secured credit card is, and how they’re different from the norm. Maybe you’re getting ready to buy a house or car, but you’ve been denied, based on poor or no credit history. Even just getting utilities or cell phone service can be depressing if you don’t have good credit. Having poor credit can be emotionally painful and can lower your self-confidence.

Whether you’re starting out from scratch, or you’re making a comeback from bankruptcy, getting a secured credit card can be extremely useful in building your credit.

In this article, we’ll examine secured credit cards and how they work. By the time you finish reading this post, you’ll know all about secured credit cards and whether they’re right for you.

Why Get a Secured Credit Card?

Maybe you’re shopping for your first apartment, or you’re a new immigrant to the U.S., and you need to prove credit worthiness, but you have no credit history. Or perhaps you’ve had a divorce or bankruptcy, and you need to rebuild your credit. Either way, a secured credit line will help.

When you open a secured credit card, the bank will ask you for a deposit as collateral. Are you worried about whether you’ll be approved? Fortunately, many banks won’t check your credit when you apply because there’s much less risk when you’re borrowing your own money.

The biggest reason to get a secured credit card is to improve your credit score. After you show that you can borrow money responsibly, you’ll eventually be trusted with an unsecured line of credit. You might even score a better interest rate too.

One great thing about secured lines of credit is that they force you to limit spending. You’ll only spend what you have, which is good training for anyone who is new at borrowing money.

How to Choose a Secured Credit Card

Your credit line is whatever amount you give the bank for collateral. It could be as little as $300 or as much as several thousand. It all depends on the amount of the deposit you make, minus bank fees.

The key to finding a secured credit card is finding a bank that will report to all three credit bureaus: Equifax, Transunion, and Experian. This is crucial because a lender you want to borrow money from in the future may only use one bureau to check your credit. So, it is essential that each credit bureau has your new secured credit information.

Other things to check are fees and interest rates. Most cards will have an annual fee, but you may be able to find one that doesn’t, or one that has a lower cost than the others.

Your local credit union might have a reasonable deal, or you can try asking a big bank. Another option is to go online.

How to Use Your Secured Credit Card

Secured credit cards aren’t to be used forever. You’d use it only until you raise your credit score, and that could happen in as little as 45 days. You’ll want to get rid of your secured credit card as soon as you are eligible to get an unsecured card because they tend to have high-interest rates and annual fees. Plus, you’re being charged to use your own money, so it will not get you far in the long run.

The best way to raise your credit score quickly is to spend less than one-third of the credit limit and pay it when the monthly bill arrives. Leaving 70% of your credit untouched will help boost your Fico score because you’re using less of your available credit.

However, it’s a good idea not to pay the card off completely. For example, if you have a $300 secured credit line, consider leaving a balance of $2-10 to show that you’re actively using the card. Then do the same next month. You’ll see an improvement in your credit score after a month or two if you continue using this method.

Final Thoughts

Getting a secured credit card is an excellent way to build credit and pave your financial future. You’ll be more able to get an apartment, car, or house, and possibly at a better interest rate.

If you’re trying to raise your credit score quickly, remember never to pay late, not to use more than 30% of the limit, and to always leave a small balance on the card.

Are you considering using a secured credit card to establish your credit or raise your score? What has been your experience with using secured credit cards?