A secured credit card is a credit line that is tied to collateral such as a cash deposit. The amount of the cash deposit is typically the credit limit for that account. For example, if you put $500 in an account, a creditor may give you a secured credit card with a credit limit of up to $500.
There is a stigma when it comes to secured credit cards that only people with bad credit should have them. In actuality, many more people can benefit from secured credit cards. For instance, it can help you budget by never charging more than what you have saved.
Establishing your credit history
Secured credit cards are a good option for anyone looking to establish a credit history. Many wonder how they can establish credit if no one is willing to give them credit. Secured credit cards are the answer. Once you’ve held a secured credit card for 6 months, a credit score is generated.
Strengthening your credit score
If you are looking at increasing your credit score, secured credit cards can help you. Adding an additional account in your credit report or increasing your available credit can help strengthen your score. It is believed that secured credit cards are weighted heavier than their unsecured counterpart by the credit score algorithms.
Re-establishing your credit
Secured credit cards are a great option for those with bad credit or have filed bankruptcy. Secured credit cards allow you to re-establish your credit history without a credit report review. After having a secured credit card for 6-12 months with on-time payments, many will find it easier to get approved for an unsecured credit card.