A secured credit card is one with a credit limit determined by the amount of money you put down as a security deposit for the card. People with bad credit or no credit history are frequently denied unsecured credit cards because banks consider them too risky. If you have bad credit or no credit history, obtaining and responsibly using a secured credit card can assist you in building or rebuilding your credit.
Part 1 Getting a Secured Credit Card
1. Look for lenders who provide secured credit cards. Many lending institutions provide secured cards, which can come with a variety of fees and interest rates. Online, shop around for the best price.
Secured credit cards may be available through your bank. If that’s the case, this may be the most practical option. Consult your bank’s website or speak with a banker.
Several websites summarise and rank the features of various credit cards, including secured cards.
This can assist you in making quick comparisons between your options.
2. Choose the appropriate card for you. Compare the information you’ve gathered and select the card that best meets your requirements. Remember the following:
Make certain that the creditor you choose reports to all three major credit bureaus. Otherwise, your payments may not have much of an impact on your credit.
Choose a card with the fewest fees and the lowest possible interest rate. Some secured cards have an annual fee, while others do not. If possible, look for one with a low interest rate and no annual fee.
Choose a card with a manageable minimum deposit. The amount of money you must put down in advance varies greatly between cards.
Before applying for a secured credit card, always read the fine print to ensure that you fully understand the terms and conditions.
Make sure to inquire with the credit card company about switching from a secured to an unsecured account. Many lenders will waive your security deposit and return it after you have made a certain number of timely payments.
3. Make an application for a secured credit card. Once you’ve decided on a bank, fill out the credit request form and sign the necessary documents according to the bank’s instructions.
The forms are frequently available online through the bank’s website.
4. Make your deposit. After you’ve completed all of the necessary application forms, you’ll need to make your first deposit. The deposit amount determines how much you can spend on the card.
For example, with most cards, if you deposit $1000, that will also be your credit limit.
This deposit does not count toward your payments; it is simply collateral for the bank in the event that you do not pay. If you make on-time payments, you will receive this deposit back when you close the card.
Some banks may offer you a low interest rate on your deposit.
Your deposit will typically range between $200 and $10,000.
Find out how long it will take to get your deposit back after you close the card. In the event of any delayed charges, some banks will hold your deposit for a couple of billing cycles.
Part 2 Using Your Card Responsibly
1. Make minor purchases. Once you have your card, you must use it, but only in moderation. Every month, spend it on a few small purchases.
To build credit, you must use your credit card. Getting a card and never using it does not demonstrate to creditors that you are capable of using a credit card responsibly.
Once a month, buy a few cups of coffee or use the card to fill up your car with gas. Make small purchases so you can be sure to pay them off.
2. Every month, pay off your credit card balance. You can not only avoid paying interest this way, but you can also rebuild bad credit or build a credit history faster.
Every month, pay your bill on time. Even if you are unable to pay the entire balance, make at least the minimum payment on time each month to improve your credit rating.
Failure to pay on time may result in default, in which case the bank may keep your deposit.
3. Boost your credit limit. Increase your credit limit whenever possible by depositing additional funds into your security deposit account. Attempt to obtain a credit limit that reflects your ability to be responsible with a large amount of credit.
Maintain a low balance. No matter what your credit limit is, keep your balance as low as possible. It is generally advisable to keep your balance below 30% of your credit limit.
Do not spend more than you can realistically afford to pay with the card, or the card you got to rebuild bad credit may make your credit worse.
4. When possible, use an unsecured card. You should only keep your secured credit cards for as long as necessary. Secured cards typically have relatively high interest rates and are thus not a good option when an unsecured card is available.
Make sure to pay off your secured card and close the account. Otherwise, you risk damaging your credit or incurring fees by inadvertently using the card and/or failing to pay charges on the account.
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