Building credit is a long process, and rebuilding it an even longer one. Making the correct choices to start your credit is a decision that should not be made in a hurry, since this will follow you for the next dozen years, regardless of what you do. There are many more options than there used to be, but a credit card has become a near-necessity. A secured credit card should help you develop good habits, and provide a firm financial basis for future purchases and needs.
[Read: How to Use a Credit Card Wisely]
Normally, these are offered to those with little, no, or bad credit. This type of card is initially expensive, requiring a deposit of funds to activate the card. This will provide the basis for offering you credit, since the money is there to cover any payments you may miss.
The issuing bank will offer you an actual line of credit: and report all your activity -including missed or early payments – to the credit reporting agencies. Since many jobs that require handling money check your credit report, this is something that will help you find a job, or maybe assist in getting you a promotion at work.
Things to watch for with your card
Before applying for a secured credit card, there are several things to look at:
- Do you have a job? Employment history will be a factor in establishing if you are eligible for a card.
- Make sure that the card will report to credit agencies; occasionally there will be cards that do not routinely report your credit to the national agencies.
- Look at how much of your money is going to be available. Some cards only offer access to half the funds you deposit, and a few may offer a temporary amount higher than your deposit.
- Fees and other charges. Secured credit cards seem to have some of the highest fees, due to the chance that the bank is taking. These may include activation fees, monthly fees on unpaid balances, and late fees, as well as high interest rates.
- Other requirements. Some of the cards may insist that you pay for insurance in case you do not make your payments, or may ask for minimum purchases per year, or additional deposits if your need to raise your limit.
So now that you have seen what some of the points to watch for with a secured credit card,you are now set to look for a card. Since this will be treated as applying for credit, be aware that your credit report will show, and react, to every application that you turn in. Too many applications will result in a denial for overextending your credit, which will show as a negative on your credit reports.
You may be turned down for a card: the bank offering the card needs to have an assurance that you will be able to pay any bills you may run up. Nerdwallet.com provides brief look at the differences between unsecured and secured credit cards, and may offer insight into whether this is a good option for you.
Moving from a secured credit card
Things are not all bad. You may earn eligibility for a higher limit with no additional deposit, or be moved to an unsecured card in the future. Secured credit cards help prove your credit-worthiness, and this will serve you well in the future.
With all of your activity reported, this will allow you to build the credit you need. But be aware, any negative information will move your score downwards, and this can be tough to recover from.
Habits to practice with your card
Secured credit cards are a great place to learn about how your credit is affected by the daily activities you do. Keeping a close eye on your score will let you see how you look to a bank or an employer. In addition, you will know what will cause your score to go up and down. This is information that you will need to know, in case you ever need to apply for more credit in the future: like for a car or home loan.
If you find yourself unemployed or injured, using the card is not a good option. It will provide the needed items, but at the cost of higher payments, and a negative effect on your score. This seems to be an obvious fact, but is one of the more-ignored facts of credit in the world today.
Paying off your balance on time, or making more than the minimum payment – just like with an unsecured car, will reflect well on your secured credit card use and habits. With the additional fees, this will also save you money in the longer term. Being smart with your credit is an excellent habit to develop now for future security.
Secured Credit Cards- The Inside Scoop