A limited credit history or low credit rating can impede your ability to finance large purchases, get approval on a car loan, or even be accepted into a new job. Secured credit cards are a fast and easy way to start initiating or rebuilding your credit history.
What is a Secured Credit Card?
The difference between an unsecured, or traditional, credit card and a secured credit card is a security deposit required to activate a secured credit card account. The company providing the secured line of credit will require a cardholder to put down a certain amount of cash as collateral. That dollar amount usually becomes the basis for the card’s credit limit.
If the balance due for the secured credit card is left unpaid, the cash deposit will be used to cover the debt instead of it being sent to collections. Due to the added security of cash collateral, secured credit cards have seriously reduced credit requirements that applicants need to meet.
Responsible Usage
One of the ways a secured credit card can improve or rebuild your credit rating is by demonstrating responsible usage of credit. Regular purchases and timely payments build a history of reliability as an account holder, which will improve a poor credit score or begin building a solid credit history for someone just starting out. The inability to accrue credit card debt more than the deposit can keep you from digging a financial hole and damaging fragile credit.
Affordable and Accessible
For most consumers with poor credit or a limited credit history, the process of improving their credit ratings can prove to be rather frustrating. In order to improve credit, you need to use credit in a positive manner, which means finding a way to access an affordable line of credit. Unfortunately, access to affordable credit can be a hard thing to find if your credit score is lacking. Unsecured credit cards generally have lower creditworthiness standards without an inflated cost or interest rate. These characteristics of secured credit cards can help you rebuild your credit much faster than you otherwise would be able to accomplish.
Secured credit cards give consumers with less than perfect credit scores a chance to rebuild their credit while having access to a convenient credit card. Once you've put down your deposit and acquired your secured card, practice responsible spending and payment habits in order to rebuild your credit fast.
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