Secured Credit Cards Can Help Fix Your Credit

A Credit Article Contributed by Kris Griebe

How Can Getting a Secured Credit Card Help Fix My Credit?

A secured credit card is much different from the credit cards you probably already have, or may have had in the past. Those credit cards have probably contributed to your current credit problems! This may lead to a certain amount of skepticism, but secured credit cards can indeed help improve your credit score.

If you think about it, using a secured credit card is much like writing a check or using a bank card. Because you have already put a deposit down in the amount of your limit, if for some reason you cannot make your payment, your deposit covers the payment. Hence, you should never have to worry about missing a payment and damaging your credit score.

As an added bonus, because many secured credit cards are designed specifically to help you repair your credit, the card issuer will frequently report your good standing to the three major credit agencies. This means that you will consistently have good remarks placed on your credit report, boosting your score and helping to wipe away the stains left by negative remarks in the past.

Secured Credit Cards Require a Deposit

When you first obtain your secured credit card, you will probably be granted a very low limit. 250$-500$ is not an uncommon credit limit. Before you can use your card, you will have to pay the sum of your limit. This deposit acts as a security deposit for the credit card company, so they can make sure that you will not default on your payment. Because they are essentially paying for the purchases you make, they want to receive their money back, plus the fee (in the form of interest) for you using their services.

If you pay one tenth of your credit limit on your first bill, you will have one tenth of your credit limit available for spending. You can never exceed the maximum amount you have deposited on your credit card. This protects both you and them from overzealous spending. By paying off your full deposit amount you can free up the entirety of your limit, giving you additional spending power, while protecting you from sudden emergencies, such as job loss, or bills that supersede the importance of your credit card payment.

Can My Secured Credit Card Become Secured?

Yes, over time many companies will slowly refund your deposit amount, turning your secured credit card into an unsecured credit card. By paying your monthly bill on time consistently, you can prove to your credit card company that you are responsible and committed to making good credit choices. Because of this, they will put more trust in you, slowly returning your deposit, or even increasing your credit limit.

Not all companies will do this, but some leave the option available. These cards are the best to obtain because they can provide you with the best of both worlds. At first they help you to develop good habits, by paying your bills on time. As you become better at managing your debt, they will reward you with a lower deposit amount, or an increased credit limit. This will gradually phase you back into the world of unsecured credit cards. This time, you will be prepared to handle the responsibilities and can make informed decisions that will promote a healthy credit history!