Repairing Your Credit with Secured Credit Cards

What Is a Secured Credit Card?

When you get a secured credit card, you deposit a specific amount of money with a bank—$500, for example—and receive a credit card with an identical limit. You can use the credit card in exactly the same way as any other credit card, and make regular monthly payments to pay off any charges you make.

The credit card is secured against the money you have in the bank, so there is no risk for the lender because they can simply take the deposited money if you don’t pay the balance on your credit card. Most banks will even give you interest on the initial payment you make to secure the credit card.

How This Helps You Build Credit

This is a great way for people with bad credit to build up a good credit rating. Firstly, it may be the only way someone with bad credit can actually get a credit card, because there is no risk to the issuing bank.

Secondly, if you make regular and consistent repayments on your card, then you will build a positive credit history on you credit report that shows that you consistently pay off your debts.

What to Watch Out For

You must pay your monthly bill without fail or you’ll just damage your credit more. Also, make sure you don’t go over your limit on purchases. This can be easy to do because secured credit cards do not have very large credit limits.

Secured credit cards don’t make a big impact on your wallet when it comes to interest rates because the credit limits low, so even with a high interest rate, your interest charges will also be low.

Many secured credit cards are free to open, so be wary if a company offers you low interest rates but a high annual fee or initial start-up costs.

Building Good Credit

If you use your secured credit card often and make regular payments, then you will build a thread of good credit history. After a year or so, you can apply for other credit, such as a non-secured credit card. If you manage this properly too, then you are well on the way to establishing good credit. But remember that you must avoid penalties for late payments to prevent undoing all the good credit you’ve worked so hard to build.