Once you have learned that you have a low credit score, there are steps you can take to start building it again. One way to raise your credit score is to use a secured credit card. These cards work like credit cards in that they let you buy merchandise the same way as a credit card, but there are a couple of differences.
Obtaining the Secured Credit Card
When choosing your secured credit card, you will need to pay a deposit on the card. Be aware that these are not the same as prepaid debit cards. Most secured credit cards require a minimum deposit of at least $200, but some require more – possibly $300. One card, the Capital One Secured Mastercard, will give you a card for a minimum deposit of $49.
There is also a limit as to how much of a deposit you can put on the card. Some credit card issuers will let you put up to $1,000 on the card. Others will allow a maximum of about $2,500.
No Minimum Credit Score Needed
Normally, when you apply for a credit card, you will need to have at least good credit. The advantage of a secured credit card is that you can have any type of credit and still be able to get one. Your deposit eliminates all risk to the card issuer. They will simply keep your deposit money if you do not pay your bills.
The Credit Limit
When you buy the credit card, your credit limit will usually be equal to the amount you deposit. After you have the credit card for some time, the issuer may raise your credit limit if you continue to make your payments on time, or after you make an additional deposit to the card. The credit limit is set and it is not possible to buy something that will be more than your credit limit.
What to Watch for
Some of these cards come with an annual fee, but many of them do not have one. They also will have an interest rate. You want to choose one that has no annual fee and as low of an interest rate as possible.
Just like any other credit card, you need to make your payments on time. You cannot use the money for the security deposit for payments. This is because the issuer will usually hold your deposit until you have either closed the card, been given an unsecured one, or deposited more money onto the card.
You will pay the interest rate on the credit card if you do not pay the bill in full each month. Money can be saved if you do not leave a balance on the card.
Raising Your Credit Score
Your credit score is based on several factors. The primary one is paying your minimum bill on time each month. Once you have established a track record of consistently paying your bill on time, the card issuer may give you an unsecured credit card.
Before choosing your secured credit card company, you want to be sure that it reports to the three main credit bureaus. If it does not, it cannot affect your credit score.
Getting a secured credit card is probably the fastest way to raise your credit score. You can use them to build your credit score if you are just starting with getting credit, or if you simply want to rebuild it.