What is a Secured Credit Card?
If you’re looking for a way to rebuild your credit, a secured credit card may be the right option for you. A secured credit card is a type of credit card that requires a security deposit before you can start using it. This deposit helps protect the issuer if you default on your payments. Secured credit cards are perfect for people with bad credit, as they can help improve your credit score over time. In this blog post, we will discuss what secured credit cards are and how they can help you rebuild your credit!
Let’s get started.
An Overview of Secured Credit Card
A secured credit card is a type of credit card that requires you to deposit money into an account as collateral. The deposit is usually equal to your credit limit, which means that if you don’t make your payments, the issuer can take the money from your account to cover the debt. Secured credit card for bad credit is designed to help people rebuild their credit scores.
There are two main types of secured cards: those backed by savings account at a bank or other financial institution and those backed by cash or investments in a brokerage account. Some secured cards also require you to pay an annual fee instead of a security deposit.
How Does Secured Credit Cards Work?
A secured credit card is a type of credit card backed by a deposit. The deposit serves as collateral and helps to reduce the risk for the issuer. This makes it easier for people with bad credit to get approved for a secured credit card. If you feel a secured card is appropriate for you, this is how you may obtain and use one:
Apply for a Secured Credit Card
You must first apply and be approved to get a secured credit card. The issuer will likely run a hard inquiry on your credit report during the application process. Once you are approved, you will be asked to make a deposit. The deposit is typically equal to your credit limit. For example, if you want a secured credit card with a $500 limit, you may need to make a $500 deposit.
Using Your Credit Card
Like any other credit card, you can use your secured credit card to make purchases anywhere that accepts credit cards. You can also use your secured card to book travel, shop online, and make other payments. The limit on your secured card is determined by the amount of money you deposit with the issuing bank. For example, if you deposit $500 with the bank, your credit limit will be $500.
Getting your Deposit Back
After a period of on-time payments, you may be able to transition to an unsecured credit card. This means you will get your deposit back and will no longer be required to make one. Be sure to check with your card issuer for more information about their policies regarding secured cards.
Benefits of Secured Credit Card
Here are the major benefits of secured credit cards:
- They help rebuild your credit score by reporting your activity to the credit bureaus
- They typically have lower interest rates than unsecured cards
- They can help you establish or reestablish credit
- Some secured cards offer rewards programs, so you can earn points or cash back on your purchases
- The deposit is returned to you once you close the account in good standing.
The Bottom Line
Secured credit cards are a great way to rebuild your credit. If you have bad credit or no credit, secured cards can help you improve your score so you can get approved for unsecured cards and loans in the future. Most importantly, you should remember to make your payments on time and keep your balance low to avoid further damaging your credit.
Bonus: Check out Zolve’s Secured Credit Card to Build Credit!
Thanks for reading! We hope this blog post has been informative. A secured credit card for bad credit is an excellent way to improve your credit score!