Secured cards are one of the finest solutions for folks who are new to credit or have less-than-perfect credit. Here’s how secured cards work, what credit you’ll need to get one, and how to switch to an unsecured card.
There are a number of credit cards on the market that are designed to help you develop or rebuild your credit. Secured cards are one of the finest solutions for folks who are new to credit or have less-than-perfect credit.
As long as you follow appropriate credit conduct, you can use a secured card just like a standard (called unsecured) credit card to help you create good credit.
Select explains how secured credit cards work, what credit is required to receive one, and how to switch to an unsecured card.
How do protected cards function?
A secured card is similar to an unsecured card in that it provides a credit limit, might incur interest charges, and may even earn rewards. The key distinction is that you must make a deposit (known as a security deposit) in order to obtain a line of credit. Your credit limit is normally determined by the amount you deposit.
Deposits normally begin at $200 and can go up to $2,500. A $200 security deposit will result in a $200 credit limit. You’ll need to deposit more money if you want a higher credit limit.
If you default on payments, the money you deposit serves as collateral, but it is fully refundable in one of two ways: pay off your balance in full and close your account, or upgrade to an unsecured card.
Secured credit cards provide many of the same benefits as standard credit cards, but they are usually easier to obtain if your credit history is weak or non-existent.
The only significant difference, aside from the needed security deposit, is the interest rate. Secured cards typically provide all customers a single variable interest rate, such as 24.99 percent. Meanwhile, an unsecured card frequently includes a range, such as 13.99 percent to 24.99 percent. In most circumstances, the higher your credit score, the cheaper your APR. Because secured cards frequently have a single, relatively high APR, it is critical that you always pay on time and in full to prevent interest penalties.
How secured cards can help you build credit
When you use a secured card responsibly, making on-time and full payments, this information is transmitted to the three major credit agencies, Experian, Equifax, and TransUnion, which helps increase your credit score and puts you on track to qualify for an unsecured card.
Because payment history is the most essential aspect in your credit score, it is critical that you always pay on time. If you routinely make on-time payments with your secured card, favorable information will be transmitted to credit bureaus, assisting you in the development of credit.