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3 Reasons You Should Have a Secured Card

Secured cards are often misunderstood. And while they are an awesome tool to use to rebuild credit, there are other advantageous uses for them as well.

For example, a secured card allows you to put a shine on your credit and raise your credit score WITHOUT going into debt. People are often credit shy after having lived through a debt problem but being afraid of debt or credit doesn’t help you to recover from a past financial pothole.

With a secured card your deposit will cover you balance in case you run into an unexpected financial situation. If the balance is there to protect you, there is no debt for whatever balance you may have but be unable to pay for an unexpected reason.

Secured cards rebuild credit by reporting to the credit reporting agencies each month.

The secured card can help control a budget since it limits what you can spend.

Boosting Your Credit Score With Good Credit Using a Secured Card

Using the report card analogy, if you wanted to bring up your GPA you would need to earn some better grades to do it. It is the same with your credit report. If you want to bring your score up you need to start having new and good credit reported about you.

The best way to do this is to get and use a secured credit card. In fact get two different ones. I put together a section of the site that lists reviews for secured cards. Look at the secured cards here.

The advantage of getting a secured card is that you will get the credit card and not get a rejection on your credit report that will further hurt your credit. A rejection can be easily spotted by looking at the inquiry section of your credit report and seeing there is not a corresponding card opened. And with your current bad credit, if you applied for an unsecured card, you would get rejected.

The reason you will get the secured credit card on the first attempt is because you need to put up a deposit with the bank that is equal to your credit limit. The deposit will earn you interest and in the unfortunate event you were unable to pay your card and defaulted, the bank would use your deposit to pay the debt.

When looking for a secured card you want one that will report to all three credit bureaus. This is key. We need your new good payment history reported.

Now when I say use the card, you do not need to carry a balance from month to month. Just use the card for regular purchases and pay the card off either immediately or at the end of the month.

Also, if you get a secured card with a $300 limit, never have more than 35% of the limit on the card. Even though your initial limits may be low, you don’t want to max them out. You can always increase your limits by increasing your deposits. You can increase your credit limit by increasing your deposit with the card company.

I suggest getting more than one card so you can get as much good juice flowing to your credit report without having too many credit cards open. You could actually go with three if you wanted to, but no more than that.

Just make sure the card will report to the credit bureaus.


3 Reasons You Should Have a Secured Card
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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • ThomasPNitzsche

    Great resource on the reviews for the card companies!  It is a frequent question from clients who cannot qualify for an unsecured card. 

    We have also referred clients to check into a “credit builder CD” offered by a major bank in the area.  It is advertised to work as basically a secured installment loan which reports to the bureau(s).  I don’t know much about them beyond that, but do you have any experience/opinion on them?  I linked below as information only, just the first explanation I found that wasn’t a bank website.  

    http://www.gocreditmatters.com/Credit%20Library%20Promo/Improving%20Your%20Credit/Establishing%20Positive%20Credit/howestablishcredit.html

    Thomas Nitzsche
    ClearPoint Credit Counseling Solutions

    • http://GetOutOfDebt.org Steve Rhode

      It’s my understanding that such a loan would not carry as much “juice” or weight as a credit card. Even though it may be a secured card they don’t report to the bureaus as such.

      Bank loans and especially secured bank loans may not be as much evidence of credit use.

      The other issue is that banks do not as regularly report to any credit bureau, not to mention all three. I’ve seen a number of consumers that tried the CD route only to have nothing ever reported on a credit report about the loan.

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