Secured credit cards are an important credit building tool.
Secured cards are a special type of credit card that requires you to make a deposit. The card issuer then gives you a line of credit equal to that deposit. For example, you could have a secured card with a credit limit of $ 500 and you would deposit $ 500 into a special bank account that the creditor could access if you did not pay your bills.
Since creditors take no risk of non-payment when issuing a secured card, virtually anyone can get one, even people with no credit history or with recent bankruptcy or foreclosure. And they can help you improve your credit score when making payments and using them responsibly.
But there are many cards. It is essential that you choose the best secured credit card to ensure that you enjoy all the benefits that this type of card has to offer while limiting the potential drawbacks. To help you find the right card, be sure to research these four features.
1. Reports to credit bureaus
The most important thing to look for in a secured credit card is a promise to report your borrowing behavior to each of the three major credit bureaus. Equifax, Experian, and TransUnion collect information from creditors, and this data is used to determine your credit score. But not all secure card issuers report to them.
If your card does not report to credit reporting agencies, it will ultimately have no effect on credit creation. You will not benefit from your history of responsible borrowing behavior, so you will only freeze your money to get a secured card for no reason and delay when your credit is good enough to get another type of card.
2. Regular review possibilities
Many secure card companies offer the option of eventually switching to an unsecured card once you’ve shown that you can be responsible. For example, some companies review your borrowing behavior every six months to determine if you qualify for more credit (with no additional deposit) or a refund of your original deposit.
Automatically reviewing your borrowing behavior can help you switch to an unsecured card faster without having to close your current card or apply for a new one. This is a huge plus, as you want to get your deposit back while still being able to continue using your card to accumulate credit.
3. No fees / low fees
There are very expensive secured credit cards, which sell themselves to borrowers who want to build up credit quickly. There are also free secure cards that do not place this kind of burden on people trying to improve their financial lives.
There is very little reason to pay high fees for a secured card when there are other creditors who want to do business with you without charging you for this lien. Avoid cards that abuse your desire to build your score.
Finally, some secure cards allow you to earn rewards. While the rewards you get aren’t as competitive as those offered by cards exclusively available to people with good credit, they can still be a nice bonus. After all, why not be rewarded for the expenses you make anyway?
Rewards aren’t the most important thing to look for – a lack of fees and reporting to credit bureaus is far more essential. But all things created equal, if there are any cards that tick these other boxes and giving you cash back or the chance to earn points or miles, don’t pass up this great benefit.