Many of today's best credit cards may not accept your application if you have poor credit, a short credit history, or a recent negative note on your credit report. However, a secured credit card is another quick way to show that you can manage credit responsibly. Let’s discuss how you can use a secured credit card to rebuild your credit or start building your credit.
What is a Secured Credit Card?
Secured credit cards are the type of credit card that requires deposits, and then after approval, you will get the credit line equivalent to your deposits. Many advantages and safeguards of a traditional credit card are available with a secured credit card, but you must first make a security deposit. You must be thinking, but why? Lenders may be concerned that you will be a risky borrower if you have bad credit or short credit history. Depositing a security deposit offers your lender some insurance if you don't pay your debts on time. You'll get your security money back if you correctly handle your credit line.
Now, what will be the cost of your security deposit? It varies. With certain secured credit cards, you can get a line of credit with a deposit of under $50. For example, if you want a $200 line of credit, you'll need to make a $200 deposit because most cards require you to match your credit limit with an equivalent deposit. This is the first to consider when choosing your secured credit card.
Here is the best way to use a secured credit card to build credit, follow these below mentioned tips carefully:
How to Use a Secured Credit Card to Build Credit
- Utilize the card: Use your secured credit card responsibly once you have paid your security deposit. To keep a decent credit utilization ratio, avoid using your credit card to the maximum limit and keep your balance low.
- Pay off your debt entirely and Timely: If your goal of having a secured credit card is to establish excellent credit, developing good habits is the best way. You can start by making quick and complete payments of your amount each month.
- Enhance Credit Limit with Regular Payment: A secured card's final advantage can only be obtained through cautious use. That entails paying the account promptly each month—ideally in full—and staying well within your credit limit. You will soon be able to obtain an unsecured card with no deposit required, a greater credit limit, better features, and more favorable terms if you continue to behave responsibly.
- Ensure activity on your account gets reported: The lender or card provider will notify the credit agencies of any activity on your account. Most issuers do this, but it's a good idea to double-check. Having a secured credit card can be an excellent strategy to establish credit, and this will only be true if the information is on your credit report.
How To Rebuild Credit With Secured Credit Cards
Poor payment history is the primary cause of most cases of bad credit. By obtaining a secured credit card, you can demonstrate better payment habits even if you cannot use a traditional credit card. In this case, you can use a secured credit card to rebuild your credit.
Make sure the creditor reports to at least one of the three major credit bureaus before you apply for a secured credit card. If not, the card won't help you rebuild your credit because potential creditors won't be aware of your solid payment history. Your payments won't appear in your credit record or affect your credit score if the card issuer doesn't report them to the leading credit agencies.
Remember that your goal for the new secured credit card is to establish a good credit history once approved. However, avoid using the card to incur debt. Instead, make small purchases with your secured credit card that you can pay monthly.
Secured credit Card is the best way to build or rebuild your credit. If you are worried about subscription fees and the annual interest rate of secured credit cards, now some best credit cards like Azpire can be the best option for you. Azpire credit card for credit building comes with no hidden charges and zero annual interest rate. So choose your credit card wisely and start responsibly to build your credit.
Frequently Asked Questions (FAQs)
Can you build credit with a secured credit card?
Use a secured credit card to establish credit. You can get a small credit line with secured credit cards for a reasonable, refundable security deposit. If you don't have a lot of credit history or a high credit score, a secured card is one of the quickest and easy ways to establish credit.
Does using a secured credit card boost your credit growth?
Using a secured credit card responsibly is one of the simplest and fastest ways to establish credit. Regularly use the card, but don't use the total amount. Maintain a balance that is less than 30% of your credit limit. Even better is avoiding exceeding 10%.
How do secured credit cards rebuild credit?
Your credit can be established or rebuilt with a secured credit card because your payments will be recorded on your credit report, and making on-time payments while managing your amount will raise your credit score.
How quickly can credit be rebuilt with a secured card?
It usually takes up to two months after you start using your secured card for your score to begin rising. If you've never built credit before, it may take up to six months for a credit score to even appear on your record.
Do secured credit cards improve credit more quickly than unsecured ones?
For building credit, secured and unsecured credit cards work identically. Like unsecured cards, all major secured cards provide monthly account information to the credit bureaus. A credit report cannot distinguish between secure and unsecured cards.