Maintaining a flawless credit history can be a real challenge, as only a few missed or late payments can have a significantly negative impact on your credit rating.
When you’re just starting out or have some delinquencies on your record, a secured credit card may be just what you need to improve your overall credit rating — which can save you money over time.
What Are Secured Credit Cards?
The majority of credit cards are considered “unsecured credit”, meaning you are not offering anything of value to the creditor upfront as a guarantee that you will make your payments. When you buy a home or an auto, that type of financing is secured with a lien on your home or vehicle.
Secured credit cards work in much the same way, only they are secured by an upfront deposit which can be used to make your payments if you are not making them in a timely manner.
Your upfront cash deposit may even earn a small amount of interest, but many secured credit cards do not offer this option.
When to Use Secured Credit Cards
Secured credit cards tend to be most effective at raising the credit for individuals who do not currently have a credit history. Poor credit history takes time to overcome while building a new credit history from scratch can potentially be accomplished in as little as six months.
Attempting to rebuild poor credit starts with regular payments on all open accounts, and secured credit cards can be considered a safety net to help you learn to responsibly use credit in the future.