Build Your Credit Score With A Secured Credit Card

July 10, 2019

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Around 22% of Americans do not carry a credit card with just over a third of Millennials choosing to stay away from borrowing money.  Many choose not to carry cards while other have checkered credit pasts that make it hard to obtain credit and when it comes to making big purchases, this can be a problem with a low credit score and higher interest rates.  One option you can use to grow you credit score is with a secured credit card. Unlike a typical credit card, where you’re given a credit limit and can spend up to it before paying the bill, a secured credit card requires an up-front deposit to guarantee you can pay. Your credit limit for the card will match the amount of the deposit you submit. Then, after a certain amount of time, you get your deposit back. But not all secured credit card deals are equal. Make sure the bank or financial institution reports to the credit bureaus. The whole point of coming up with the cash to make a deposit for a secured credit card is so that your responsible credit use will be reported to at least one of the credit bureaus: Experian, TransUnion, or Equifax. Most card issuers do this, but if you don’t see this noted clearly on the application details page for the card, call to ask before applying. The initial deposit for a secured card can range from $200 to $2,000, and you may have a choice of how much you’d like to deposit within that range. Your monthly bill will be paid separately from your deposit, so you need to have enough cash for the deposit plus enough money to pay for whatever you use your card for each month. If you’re only confident that you can manage a $200 credit limit, don’t sign up for one that’s two or three times that, even if you have that much cash available. As for the interest rate, depending on your current credit score could be as high as 25-28%. In theory, the interest rate doesn’t matter, because you’ll pay your balance in full each month and will never pay a cent toward interest. But even the best-laid plans can go awry, so if you can snag a lower interest rate, snag away. If you, for some reason, have to carry a balance for a month while using a secured card, you will pay almost 30% for the privilege, even if that balance is small. Stay away from secured credit cards with annual fees. You’re already putting down a deposit. A Google search for “best secured credit cards” will surely include options that don’t have fees. Once you build up a solid payment history on a secured credit card, as early as 8 months, many secured cards will offer an upgrade to a “regular” unsecured credit card. Find out what the upgrade policy is and how the process works before you apply if you’re interested in building a history with a single credit card issuer.

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SOURCE: Two Cents

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