Jul 30 2017

What Is a Secured Credit Card – Pros – Cons for Rebuilding Credit #lenders #for #bad #credit

#secure credit cards

What Is a Secured Credit Card Pros Cons for Rebuilding Credit

By Angela Colley

Having bad credit is a Catch-22. You need an active credit line to help rebuild your credit, but most lenders won t extend you credit if you have a troubled financial past. In fact, most lenders set a credit score cutoff point and if you fall below it, you won t qualify for any traditional credit card. While you may have some luck appealing to your personal bank, a more viable option is to simply get a secured credit card.

Because secured credit cards come with stricter terms, many lenders are willing to offer them to people with poor credit. But while these cards can be advantageous, they also come with drawbacks. Therefore, you need to consider the pros and cons of secured credit cards before you apply for one.

What Is a Secured Credit Card?

Secured credit cards get their name because the lender secures your line of credit with collateral. It works like this: You deposit money into an account and the lender generally offers you a line of credit equal to the amount you deposited, though sometimes your credit line will be less than your upfront deposit.

Most lenders require an opening deposit ranging from $200 to $500. So if you default on the credit card, the lender can use the money in the account to cover your debt. However, if you regularly make your payments on time, some lenders will increase your credit limit without requiring you to add more money.

The lender will report your payment history and debt amount to the credit bureaus each month, which can help or hurt you depending on how well you manage the account. Once you close the account and pay off your balance, the lender will return your deposit. Many lenders will also let you graduate to a traditional credit card after a year or more of timely payments.

In this way, secured credit cards can help people with bad credit improve their credit score while rebuilding their credit history.


Secured credit cards come with many advantages, especially for people who have little or bad credit:

1. Rebuilding Your Credit Score

The primary purpose of a secured credit card is to give you a chance to rebuild your credit rating so you can qualify for a traditional card in the future. You can do this simply by paying your bill on time every month and keeping your balance low.

2. More Spending Power

Hotels, airlines, and car rental agencies require a credit card to book a room, buy a ticket, or rent a car. Having a secured credit card instead of just cash or a debit card will enable you to make these purchases.

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