Let’s face it: life without credit is tough. When you don’t have a good credit score or any credit history to speak of, it can be challenging to do things like rent an apartment, get a car loan, or even apply for some jobs. Fortunately, secured credit cards may offer a way to rebuild your credit and get your financial life back on track. Here are ten benefits of using a secured credit card to rebuild your credit.
1. Understanding Secured Credit Cards
A secured credit card is a credit card that requires a cash deposit as collateral. The deposit you make acts as security for the lender in case you don’t make payments on time. The limit on your secured credit card is usually the same or less than the amount of your cash deposit. Essentially, you’re borrowing against your own money. The lender reports your activity to the credit bureaus, which helps you build your credit history.
One advantage of applying for a secured card is that it’s usually easier to get approved than for an unsecured credit card, making it a great option for those with no credit history or a poor credit score.
2. Easier Approval Process
If you’ve been denied for other types of credit, a secured credit card may offer an easier approval process. Because the lender is taking less risk by requiring your cash deposit as collateral, you may be more likely to get approved.
A secured credit card may be your best option for establishing or rebuilding your credit, as it can help you demonstrate responsible credit habits.
3. Rebuilding Credit History
If you have a poor credit score or credit report, it can be tough to rebuild your credit. Fortunately, using a secured credit card responsibly can help with that. By making payments on time and in full, you will demonstrate responsible credit behavior, which will be reported to the credit bureaus. This, in turn, will improve your credit score and credit history.
It’s important to make regular payments on time in order to establish good credit habits, which will help you get approved for other forms of credit in the future.
4. Credit Limit Increase
Some secured credit cards offer the possibility of increasing your credit limit over time by making additional cash deposits. This is a great way to gradually build your credit limit and increase your purchasing power.
In order to use this feature responsibly, make sure you only increase your limit if you feel confident you can manage the increased payment amounts.
5. Reduced Risk of Overspending
Secured credit cards can reduce the risk of overspending as the credit limit is equal to or less than your cash deposit, making it impossible to overspend and incur debt that you can’t repay. This makes it a great way to practice good credit habits and financial responsibility, providing you with a solid foundation for using credit in the future.
6. Protection Against Fraud
Secured credit cards offer protection against fraud, just like regular credit cards. If your card is lost or stolen, you can report it to your lender, and they will cancel the card and issue a new one. If someone makes unauthorized charges on your card, you are not liable for them, as long as you report the fraud within a reasonable time frame.
It’s important to keep an eye on your credit information to catch any potential fraud early, so you can take steps to correct the issue and protect your credit score.
7. No Income Requirement
Another benefit of secured credit cards is that they do not have an income requirement, so you can apply even if you have no income or a low income. This makes them a great option for students, retirees, or individuals who are between jobs.
However, it’s important to use secured credit cards responsibly and not overspend, as this could lead to further financial difficulties.
8. Builds Responsible Credit Habits
Using a secured credit card can help build responsible credit habits. These habits include making payments on time, staying within your credit limit, and monitoring your credit score and report. By practicing these habits, you will improve your credit history and score over time, which will help you get approved for other types of credit in the future.
It takes time and dedication to build good credit habits, but it’s worth the effort in the long run.
9. More Flexibility
Secured credit cards offer more flexibility than other forms of credit, such as personal loans or auto loans. With a secured credit card, you can use it for any type of purchase, as long as it’s within your credit limit. You can also use it to make online or in-person purchases, providing you with more flexibility in how you manage your finances.
It’s important to use this flexibility responsibly, however, so you don’t overspend and incur debt.
10. Affordable Fees
Secured credit cards are often more affordable than unsecured credit cards, with lower annual fees and interest rates. You may be required to pay an application fee, annual fee or monthly maintenance fee, but these costs are often lower than unsecured credit cards.
If you choose a secured credit card with low fees and make payments on time, you can minimize the overall cost of credit while building your credit history.
