The Pros and Cons of Using a Secured Credit Card

Secured credit cards can help individuals either start building credit from scratch, or rebuild it after experiencing difficulty doing so. Most card companies allow consumers to graduate back into an unsecured credit card once they demonstrate they can manage the account responsibly.

However, before making this choice there are various things to keep in mind.

1. They are easier to get

As their name implies, secured credit cards are secured with cash deposits to minimize risk to card issuers in case of default by applicants with limited or no credit history. Therefore, qualifying for such cards is easier and often has lower requirements and credit limits.

Your secured card purchases will be reported to major credit bureaus, helping your score to increase over time. Use it for small purchases and pay the balance off in full every month for optimal results. As your score improves, ask your card issuer for an upgrade to an unsecured card - typically this takes six to twelve months, although diligent payment habits might make this happen faster!

2. They are a good way to build credit

Secured credit cards can be an invaluable way to build or rebuild credit. Requiring only a refundable deposit, these cards offer those with thin or no credit histories the chance to build their score rapidly - potentially within six months or less!

Make sure that you pay your balances on time each month; payment history makes up 35% of your credit score and late payments will negatively impact it. Keep credit utilization low as well, spending no more than 30% or less of available credit.

If you can manage your card responsibly, most card issuers will allow you to move back onto an unsecured credit card. Just keep in mind that secured cards usually charge higher interest rates which could add up over time.

3. They are a good way to manage debt

Responsible use of credit cards is one of the fastest ways to establish or rebuild your credit score, and secured cards provide this feature by reporting payment history to at least three major bureaus and helping you reach your financial goals more quickly.

Prepaid and debit cards do not report your card activity to credit bureaus; secured cards do. Plus, since these secured cards often offer higher limits than prepaid cards and can provide other features like fraud prevention measures - making them a good option for people trying to build or rebuild their credit.

The key to successful credit card usage is paying your balance in full every month and using it sparingly - aim to utilize no more than 30% of your available limit, that way achieving your credit goals without incurring debt is possible. Furthermore, many credit card companies allow responsible users to move back onto an unsecured card after some period of responsible use.

4. They are a good way to earn rewards

No matter the goal of rebuilding credit or expanding financial footprints, a secured credit card can be an invaluable asset. Just make sure it comes from a reputable source that reports activity to major credit bureaus while offering features tailored specifically to you and your spending habits.

Secured credit cards differ from prepaid cards in that they allow you to charge against a real credit limit, though you must first place cash as collateral in order to open an account. When using secured cards responsibly - keeping balances below 30% of credit limit while paying in full by due date to avoid interest charges - it is recommended that users keep balances under 30% of their limit and make full payments before their bill becomes due each month in order to avoid incurring unnecessary interest charges.

Making timely payments is one of the key components that contribute to building a good credit score, and cardholders who utilize their secured cards responsibly tend to see their scores improve over time. Some even qualify to graduate up to an unsecured card once their payment history has strengthened significantly.

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