What is a Secured Credit Card?
Whether you have poor credit or no credit at all, secured credit cards are a good tool to help build your credit and give you access to the benefits of a credit card.
Like unsecured credit cards, secured credit cards have many benefits such as cash rewards, security and convenience.
How it works: In short, you put down a deposit for collateral, and the credit card company sets your credit limit to that amount.
For example, you put $200 down and your credit limit is set to $200 (the actual amount will depend on the card you choose). In the event you aren’t able to pay your bill, the credit card company can take the deposit.
How Much is Required for a Deposit?
The amount required for the deposit depends on the card you choose and your credit. In many cases, the minimum deposit is $200, but you can put down more for a higher limit.
If you close the account, and have a zero balance, you will get your deposit back.
Where Can I Use a Secured Credit Card?
Anywhere you can use unsecured credit cards!
For new credit card holders, I recommend using your secured card for essential expenses like gas or groceries.
Are There Annual Fees?
Some secured credit cards have an annual fee, while others don’t. I highly recommend you choose a card with no annual fee.
Save your precious money!
Do I Still Pay Interest?
If you carry a balance, you will pay interest. The interest rate depends on the card you choose.
I’ll make it easy for you, though, just don’t carry a balance. If you use your credit card on expenses in your budget (gas, groceries), you should be able to pay the balance off in full each month.
Don’t pay interest!
When used responsibly, credit cards can be a great tool to add to your personal finance toolbox. If you have no credit or poor credit, a secured credit card might be a good way to get your foot in the door.
If you want more information, there is a great list of secured credit card options here.
Till next time