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Carol Royse
Keller Williams Realty East Valley

How a Secured Credit Card Can Help Your Credit

One of the easiest ways to build credit and improve a credit score is to open a secured credit card. Whether you’re young and new to credit, or are looking to improve your credit score because of past financial problems, a secured credit card can help.

Instead of providing a high credit limit like an unsecured credit card does, a secured card uses a deposit that you provide—such as $500—as your credit limit. The credit card issuer pulls money from the deposit if you don’t make a credit card payment.

For people with no credit history or poor credit history, a secured credit card may be the only type of credit card they can get. Someone with no credit is likely to benefit the most from a secured credit card because there won’t be any negative information on their credit report.

For those with bad credit, a secured credit card may help raise their score, but it may be a slower process because of the negative information that’s already on their credit report.

To get the most out of it, use as little of the available credit as you can. This will leave you with a low credit utilization rate, which can improve your credit score. The best thing you can do is not miss any payments, since late or missed payments have the biggest impact on a credit score.

The credit reporting agencies will look at a secured credit card with the same criteria as an unsecured card. These include when the card was opened, the credit limit, balance and payment history. The benefit is that a secured credit card should be easier to qualify for so that a consumer can build their credit.

Just like unsecured credit cards, secured cards can have annual fees. Eventually, you should see your credit score improve enough so that you qualify for an unsecured credit card with a higher credit limit. You can then cancel your secured credit card and get your deposit back. And having your $500 or so back in your hands may feel just as good as having a higher credit score.