Applying for and using a secured credit card isn’t something you want to do, but it could be in your best interest.
Unlike an unsecured credit card, you’re required to make a security deposit with this type. It acts as collateral in the event of a default. Conversely, if your account remains in good standing, you’ll receive the deposit back should you decide to close your account.
One of the top benefits of using a secured credit card is the opportunity to eventually graduate to an unsecured card. It may take several months or longer, but responsible use will put you on the right track.
Here are some other benefits of using a secured credit card:
It doesn’t take perfect credit: Many people believe that they need good or excellent credit to secure a credit card. But the truth is that you can obtain a secured credit card even if you have no credit or bad credit. Since you’re putting up collateral in the form of a security deposit, the lender isn’t taking any risk. And for that reason, they can afford to offer you a line of credit.
It can improve your credit score: There are two things you need to know about this. First off, make sure you only consider secured credit cards that report activity to the three major credit bureaus (Equifax, Experian, and TransUnion). Secondly, you want the information they report to work in your favor. So, make sure you are responsible with your credit card. This means paying your bill on time every month, even if it’s only the minimum payment. The last thing you want to do is make your credit worse, as you’ll leave yourself with an even bigger hole to dig out of.
A cap on your spending: If you’re searching for a secured credit card, there’s a good chance you have bad credit. And that may be the case because you’ve abused a credit card account in the past. Fortunately, you’ll have a low credit limit on your secured credit card, which caps how much you can spend. It may be frustrating at times, but it helps keep you in check.
While these are among the biggest benefits of a secured credit card, you may come to find that there are many others that suit you.
Final Thoughts on Secured Credit Card Benefits
Don’t look down on this type of credit card because it requires you to make a security deposit. If everything goes as planned, you can use your card for a short period of time and then move onto a more traditional option.
Remember, there are many secured credit cards to choose from. Compare the finer details of each one and then decide when it makes sense to apply. Once you’re all setup, you’ll realize that it was a good decision.