credit cards

Build credit with a secured credit card

Credit cards can really help you or really hurt you. If used wisely, you can build a great credit report to help with future investments, such as a home. If used improperly, you can destroy your credit score and get buried in debt. With a secured credit card, you can implement healthy credit card habits to build your credit score and avoid the typical pitfalls of credit card usage.

What is a secured credit card?

Secured credit cards are ideal for first-time credit card users or anyone having a difficult time obtaining a credit card. It's difficult to establish credit without a credit card, and a secured credit card is a great starting point. So what's the difference between a secured credit card and an unsecured credit card? A secured credit card requires collateral in the form of cash. Your cash collateral sets the credit line. For instance, you could deposit $300 as cash collateral. In some cases, such as timely payments, banks will increase the credit limit without additional collateral, rewarding good behavior and habits.

Before you get a secured credit card

  • Make sure you have enough money saved as an emergency fund before getting a secured credit card. It should be a credit builder, not a crutch.
  • Look for a secured card with a low annual fee. You can use Bankrate.com to compare secured credit cards.
  • Make sure the issuer sends reports to all three major credit bureaus. The idea is to build credit, and it's imperative all three credit bureaus see your healthy credit card habits.
  • Read the fine print. Research, analyze and compare all fees. There are many unsecured credit card options available, so pick one that works best for you.

After you get a secured credit card

  • Don't carry a balance. Pay the balance in-full every month to prove you are a wise credit card user.
  • Don't spend too much. Buy a few items each month and move on to debit or cash. Build your credit while maintaining normal debit and cash usage.
  • Consider an unsecured credit card if you can be disciplined. Secured cards typically have higher fees than unsecured cards. If you think you can maintain your current habits, try using an unsecured credit card

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