Credit Cards How To Use Credit Cards Wisely

Avoid These Secured Credit Card Mistakes

Eric Rosenberg
Written by Eric Rosenberg

If you have no credit or bad credit, one of the best ways to improve your credit is with a new credit account with a perfect payment history. But when you have bad or no credit, getting a new credit account can be very difficult. It may even seem impossible. But there is a solution to get new credit when you have a bad history: secured credit cards.

Secured credit cards are a type of credit card that shows up on your credit report like any other, but it does not work like a typical credit card in some ways. To learn how secured credit cards work and whether they make sense for you, follow along with this beginner guide to secured credit cards.

What is a secured credit card?

A secured credit card is a type of credit card backed by a deposit. In most cases, account holders will have to put down a refundable deposit equal to the value of the credit line. For example, if you want to open a credit card with a $1,000 limit, you would have to put down a $1,000 deposit when opening the account.

Thanks to the deposit, there is virtually no risk that the bank would lose money. This makes banks and other card issuers much more willing to open a new credit account for a risky borrower. In some cases, an issuer will even open up a secured credit card with no credit check at all, as they would open a secured account either way.

If you do decide a secured card is right for you, you’ll want to follow a set of guidelines to ensure the card helps build your credit while minimizing any costs and fees you pay out of pocket. In the next section, we’ll look at how to use a secured credit card to improve your credit.

Using a secured credit card to build credit

Every credit account you open in the United States is typically reported on your credit report. Your credit report is then used to calculate your credit score. A higher credit score can open up opportunities for better credit cards, auto loans, mortgage loans, and lower interest rates. A good credit score is a good thing to have!

Secured credit cards are best for people who need to turn around a bad credit score. Whatever happened in the past, using a secured credit card can help you re-establish yourself as a high-quality borrower.

Start by always paying your card balance in full every single month with no exception. Secured credit cards tend to charge high-interest rates, and late and missed payments can severely lower your credit score. Set up automatic payments to ensure you never make a mistake.

There is no secret, that’s really it! You’ll also do best to keep your balance less than 20% of your total available balance, as that’s another factor that impacts your credit score. The longer you keep any credit account open with a low balance and perfect payment history, the more it helps your credit score.

About the author

Eric Rosenberg

Eric Rosenberg

Eric Rosenberg is a finance, travel, and technology writer originally from Denver, Colorado living in Ventura, California. When away from the keyboard, Eric he enjoys exploring the world, flying small airplanes, discovering new craft beers, and spending time with his wife and baby girl. You can connect with him at his own finance blog Personal Profitability.

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