What is a SECURED CREDIT CARD?
A secured credit card is one on which you don’t have to make monthly payments. It doesn’t add to your debt because you have to load money onto the card before you are able to use it. The amount you place on the card is your available credit. It is not a debt that you incur, but it does give you peace of mind in knowing that you do have a credit card to use for emergencies or while on vacation.
You can obtain a secure credit card from your bank even if this bank will not approve a regular credit card for you because it is not the bank’s money that you are borrowing – it is YOUR MONEY.
How will using a secured credit card RAISE MY CREDIT SCORE?
Even though you don't have to qualify to get a secured credit card, the bank does report your use of the card to at least one of the three credit reporting agencies (TransUnion, Experian, or Equifax). This card doesn’t show up on your credit report as a secured card, but is seen as a positive item on your report. The fact that you are not carrying a balance on the card means that you don’t have any debt on the card and you have available credit to use for your needs. It's a Win Win!
If you do decide to use a secured credit card to help raise your credit score, be sure to read the FINE PRINT! There are fees associated with the use of the card, so it is important to find the one with the lowest fees, thus giving you more of your money to spend.
Also important to make sure that the issuer of the card reports to all three credit agencies. If not, it is possible that it may report to one where your credit score is seen as being in good standing and this won’t help you.
When you load money onto your account every month and make sure you have enough there to cover the fees. Most of the time, after you have been using the card for a period of time, the bank will see that you are responsible with credit card usage and will then transfer the card to one that you don’t have to pre-pay. In the majority of cases, it will take about 6 months to a year for this to happen, which is about the same amount of time it takes for you to see any improvement in your credit score.
Key Take Aways:
- A Secured Credit Card is a card that you get from your bank and "load" with money.
- The bank will report your credit card usage to one or all of the three credit reporting agencies.
- When you "load" money onto the card, be sure to put enough to cover what you plan to purchase AND the bank's fees.
- After 6-12 months you should start to see an increase in your credit score and may be offered a regular credit card by the bank!
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