In this article series, I share excerpts from my book, Divine Secrets of Affluent Women: The Guide To Owning Your Wealth. I hope you enjoy this post — if you like to connect, you can reach me via email or connect with me on social: Instagram, Twitter, Facebook. Also, you can also find my book on Amazon — here is the link to purchase the Kindle version.
Are you looking to establish credit or build good credit? If so, you need the right financial tools to achieve your goal.
The good news is a secured credit card can help. Here’s the full scoop on using secured credit cards to build good credit.
What is a secured credit card?
A secured credit card uses money you place in a security deposit account as collateral. A security deposit gives lenders the confidence that you will pay them back, even if you have damaged credit or no credit history. That’s because if for some reason you fail to pay your bill, the lender can keep your deposit.
Your credit line is based on your income, your ability to pay, and, in most cases, the amount of your security deposit. For example, if you put $1,000 into the deposit account, your available credit line would be $1,000 but you must have sufficient income and can demonstrate your ability to pay. Some credit card companies offer up to $2,500 for the initial deposit, but you can apply to increase your credit line by adding to your security deposit. (However, a secured credit card is not the same as a prepaid card. Your initial deposit is simply collateral and doesn’t count toward payments.)
How do secured credit cards work?
A secured credit card works just like a traditional credit card. That means you can use it for everyday purchases as well as for transactions where cash or debit cards may not be accepted — booking a hotel room in advance, for example. Making your monthly payments on time is just as crucial with a secured credit card as with a traditional card. Remember, if you default on your payments, the card issuer keeps your deposit. As long as you pay your balance due in full, you will get your security deposit money back when you cancel your account.
Most secured cards are reviewed periodically. If the review is successful, you may qualify to move to an unsecured credit card and receive a refund of your collateral deposit. When handled properly, you can demonstrate to your credit card issuer and credit reporting agencies that you are a responsible consumer who used credit wisely. Eventually, responsible credit behavior can help you qualify for lower interest rates on mortgages, cars, and other big-ticket items.
Having a secured credit card can help you manage spending and build a stronger financial future. For more information, you can find my book on Amazon — click here for the Kindle version.