Secured credit card for building credit
There is a very old saying that goes “It takes money to make money.” This means that you need credit for building credit. You must learn responsible credit management if you wish to rebuild your bad credit or have zero credit history so far. Using secured credit cards for building credit can definitely prove to be the right decision for you.
Secured Credit Card:
The credit score that you get is determined by the credit history that you build over a long time. If you have a very strong history of making payments, you will get a great credit score. Experts have recommended that one must start with secured credit cards. You get approval for these cards easily. The secured credit cards can serve as the perfect starting point for you when you want to build credit.
Almost anyone can get approval for secured credit cards. The regular credit cards are all unsecured and do not require collateral that can be recovered by the creditor. However, in case of secured credit cards, collateral is required. This particular safety net allows individuals with no credit or bad credit an opportunity to get approval.
If you wish to avail a secured credit card, you must deposit a particular amount in the card issuer’s account. This amount, in turn, becomes the limit that you can spend using your secured credit card. Some secured credit cards have low deposit requirements and some have high deposit requirements. Choose the one that suits your needs.
Secured credit cards can be used like other regular or unsecured cards. The credit card issuer will keep your deposited amount in its account and will use it to cover losses, if any. A debit card and a secured credit card work in the exactly same manner. As long as the credit card issuer sends reports to credit bureaus, you keep building your credit. The issuer must send the reports to bureaus like Experian and Equifax.
Building credit with the help of secured credit cards:
After you get the secured credit card, you must use it for building revolving credit. Lenders will realise that you can handle credit responsibly if you establish a good payment history. However, do not spend too much using your credit card. Ensure that you only spend what you can repay in full at the end of the billing cycle. Ideally, the credit card usage should be below 30% of the total limit on the card.
For example, you can refuel using your credit card every month. This amount will be easy for you to repay and you also build credit. Paying off the entire debt at one go helps you to avoid interest charges.
Practicing patience and remaining dedicated to the entire process of credit building can prove to be challenging. If you want to see some real progress in scores, you will have to build a perfect payment history for a substantial period of time. There is no quick fix or short cut when it comes to credit building.
You can plan on advancing in the world of credit after you have worked towards building credit for a period of 6 to 12 months by establishing great payment history. You can easily apply for a regular credit card, provided to continue to make due payments on time. Getting a car loan can also help you in the credit building process. An auto loan acts an instalment credit. So, when you pay the instalments on time, your credit score goes up.
Credit building is of utmost importance if you wish to avail loans from banks or other lenders. Credit score is the first thing that lenders would wish to see before approving your loan request. Ensure that you spend within your limits and pay off your debt on time.