Rebuilding Your Credit With a Secured Credit Card

Bad credit can happen to anyone. Regardless of how your credit was damaged, you don’t have to live with bad credit and all the problems that come along with it. Rebuilding credit takes time, but it can be done. Getting a secured credit card is a good step toward financial freedom.

Many people with bad credit start using prepaid cards instead of regular credit cards. The downside to this is that prepaid cards don’t report your activity to the three major credit bureaus so they don’t do anything to help your credit. On the other hand, most, but not all, secured credit cards do report your payment history to the major credit bureaus, so they can help improve your credit score.

With a secured credit card, you put down a deposit for the amount of credit you’d like to have available. For example, if you want a $1,000 limit, you pay a $1,000 deposit. The deposit isn’t used for payments, but it’s type of collateral for the card issuer. Once you have your card, you use it just like you would a regular credit card and make your payments on time. Making payments on time accounts for 35% of your credit score, so once you’ve established a pattern of making payments on time, you’ll start seeing an improvement in your credit score. Secured credit cards do come with fees and interest rates, so make sure to get all the details before deciding on one.

Secured credit cards are ideal for making small purchases so you can keep a low balance and you’ll be able to pay it off in full at the end of the month. Since secured credit cards can come with steep interest rates, it’s extremely important to pay your balance in full each month. Some banks that issue secured credit cards will offer a regular credit card to customers who have a good track record with their secured credit card. Secured credit cards are also a good way to build a credit history if you don’t already have one, so they’re a great option for teenagers and college students.

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