How a Secured Card Can Help You Build Your Credit

If you are a consumer with bad or no credit history, a secured credit card may be the answer to building your score. A secured credit card allows you to deposit an amount with the card issuer, usually an amount from $100, $200, or even $500. With your application approval and a money deposit, a credit card company will issue a secured credit card with a credit limit, or line of credit, up to the amount of your deposit.

Jump start your credit with two strategies

Young consumers with no credit history are perfect for a secured credit card. With a small deposit, a new consumer to the credit market can create a solid credit history and begin building a favorable credit score. There are two important strategies to consider when you are attempting to make a positive mark in the credit world:

1. Use your secured credit card to make small charges and pay them in full each month. Paying in full prevents expensive finance charges that can add to your balance each month.

   If you are trying to build a credit history, it is also recommended that you leave a small balance on your credit account each month, perhaps $10 or $20. This small amount prevents large interest charges each month. Leaving a small balance will show on your credit report that you can manage revolving credit and paying as agreed.

2. Pay on time. Your secured credit card statement will provide a due date by which you need to make a minimum payment. The due date is extremely important to note. Should you make a payment on your account after the due date, it will be considered late. Late payments on your account show up on your credit history. And late payments of 30 days or more can adversely affect your credit history for years. Be sure to pay at least the minimum payment due before the due date.

Rebuild your credit with a secured card

For those individuals who have a credit history that is tarnished, stained, or altogether foul, a secured credit card can be a great way to re-enter the credit market. Those with bad credit may have a history of late payments, bankruptcy, or repossession on their credit report, making it nearly impossible for him or her to obtain a non-secured credit card based on credit reporting standards.

In the same way that a secured credit card can help those with no credit whatsoever, a person with bad credit may obtain a credit card account by applying for and making a deposit with a credit card company. With an ongoing positive history of making payments on time and charging within the secured credit limit, the credit card company may grant a higher credit limit with a nominal deposit, even as soon as six months.

Having the privilege of the use of credit cards is a distinct advantage to American consumers. With the right attitude and a solid strategy for making prudent charges and on-time payments, a secured credit card is a solid option for consumers with lower credit scores.

Write to Grace Carter at grace@creditdonkey.com