What Exactly is a Secured Credit Card?
Learn how a secured credit card works, why you should get one and how it improves your credit.
A secured credit card is a type of credit card that has a set balance based on the deposit you place on the card. Instead of having a standard credit card limit, the limit is based on the cash collateral put down on the card. Secured credit cards allow individuals with low or fair credit scores have access to a credit card, as well as improving their credit score.
“How a Secured Credit Card Works”
A secured credit card works just like an unsecured credit card, except the balance is based on your collateral. Most secured cards want a minimum of $250 to $300 placed on the card. They come in Visa and Mastercard options and are used anywhere credit cards are accepted, as well as coming with the option of withdrawing from an ATM for an additional fee. You charge an amount on the card up to a certain amount, then pay your bill each month when it is due. Once the bill is paid in full, the full balance is restored.
“Benefits of a Secured Credit Card”
There are many benefits to getting a secured credit card, particularly if you have a low credit rating. By using the card for smaller purchases and paying your bill on time, you are improving your credit score. As opposed to a debit card, the secured credit card reports to all three major credit bureaus. Every time you pay your bill on time, it improves your overall credit rating. It is also great to have for online or last-minute purchases when you don’t have cash on hand.
“Tips for Improving Your Credit with a Secured Credit Card”
If you are getting the secured credit card for the sole purpose of improving your credit, it is important to always pay your bill in full and on time. Keep your purchases low each month, and pay the amount in full at the time the bill is due.