Why are Secured Credit Cards Beneficial?

Secured credit cards are the credit card of choice for rebuilding a bad credit score by credit repair consultants.  One big reason is that when the banks look at your credit report, a secured credit card looks the same as an unsecured credit card.  When rebuilding their clients’ credit, they will offer a secured credit card to their client over an unsecured bad credit credit card for that reason and several more!  Below we discuss the reasons why!

How do Secured Credit Cards Work?

As their names imply, these credit cards require a security deposit.secured credit card tips This feature serves three important purposes.

First, Often times these credit cards are considered “guaranteed approval”  Since the bank requires a security deposit.  It allows the bank to feel secure in granting the credit card since your credit limit will equal your security deposit.  If you fall behind or stop making payments the credit card issuer will simply use your deposit to pay what is owed.

Second,  your spending limit will equal your security deposit.  This can be VERY helpful in rebuilding credit.  Many unsecured bad credit credit cards will only give credit limits of $200-$500.  This is a good start for rebuilding your credit.  But you can do better with a secured credit card!

Third, there is something called “comparable credit”.  Comparable credit is what a bank looks at when you are asking for a loan. Let’s say you want a loan of $10,000.   They will look at your highest line of credit and analyze the payment history.  So if your highest line of credit is a $300 card.  That’s a big leap.  But if you have a secured credit card with a credit limit of $2000.00 and above.  Its a lot easier to get approved.

car loans for bad creditSo if you plan on buying a car in the next 2 – 3 years.   You will have a better chance of getting approved for a LARGER LOAN AMOUNT.  If you have been using a secured credit card with a large credit limit.

Of course, you also have to save up the money for the deposit.  But here is how a secured credit card can help you again.  You put the money you are saving towards your new car on the secured credit card.  Many of them allow you to add more money periodically to your account so you can increase not only your credit limit but your savings!  Generally in 2 – 3 years, your secured credit card will become unsecured.  Meaning the bank will SEND YOU BACK YOUR SECURITY DEPOSIT.  Then you can put that down as your down payment for a car.

So let’s go over that one more time so you know how it can work for you.

  1. You open a secured credit card with a large security deposit.  Over $2000 is preferred
  2. You use the card and show a solid payment history.
  3. You keep adding to the card and growing your credit limit.  The more expensive a car you want, the bigger you should grow your credit limit so you have comparable credit.
  4. In 2 -3 years of on timely payments the bank makes your card unsecured and you take your returned security deposit and put it down as a down payment for your NEW CAR!.

How to Benefit from Secured Credit Cards

secured credit card benefitsWhen you are attempting to rebuild your credit, whether it’s with a secured credit card or an unsecured one.  You need to train yourself to use good credit habits.

  1.  Use your credit card responsibly.  You want to show the lenders you are able to pay and pay on time.  So you want to use the credit card, but keep in mind at the end of the month, your goal should be to pay it off in full.
  2. Set up automatic payments.  Some clients set it up to only pay the minimum amount due.  And then they send more money as they can.  Always pay on time.
  3. Banks don’t like it if you have maxed out your credit cards. You should try not to use more than 30% of your available credit.

Secured credit cards are a GREAT way to rebuild your credit.  It not only allows you to build credit, build comparable credit and help you build a savings account that you can later use as a down payment for a car or just roll it over into another savings account!

NEED A SECURED CREDIT CARD?  CLICK HERE

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Updated 09/2/16 By Liz Roberts

Elizabeth Roberts

Elizabeth Roberts

Liz Roberts and her team are continuously providing information to people who are ready to repair their credit and improve their credit score. Also NewHorizon.org team strives to empower the homebased and small business owners by bringing information that can help them to manage and grow their businesses. Let our 24+ years of business finance experience help you to get the financing you need! CONTACT US if need financing for your business.

7 Comments
  1. Is it safe to give my debit card information to credit company online if i dont talk to them first? THANKS

  2. Do u mean to a credit company to pay for your credit report or something? If the company you are using is using a secured page to take your info you should be safe. Look for the lock symbol at the bottom of the page or look at the url. It should start with a https:

    Have a great day!

  3. which Credit cards allow you to move / shift / reallocate credit lines among various cards from the issuer?

  4. I’ve repeated tried to get Discover to consolidate my Discover Platinium and older Discover Private Issue lines, but no luck. With Bank One, I have successfully transferred credit lines and/or closed cards and moved their credit lines. However, more recently I’ve been told by the CSRs that getting a resulting Bank One line with more than $30-35K requires some sort of special approval, and can’t be done over the phone. I haven’t pursued that any further

  5. Can anyone suggest a secure credit card that reports to all three reporting agencies BUT does not report account as a secured account?

    Thanks

  6. Credit Cards really help people. It has a big advantage on that side. But we must see to it that the credit card that we have is secured. Because we don’t want to have any payday loans just to pay for nothing.

  7. Yes, i have 3 secured credit cards from 3 different Banks. I know for sure that they are all reported to the 3 credit bureaus. However I understand that only 30 percent of the amount should be used to increase the credit scores. So we have to watch out on using them if you want to build your credit up. However I like to know what would be the acceptable credit score for a conventional home loan be ? Thanks.

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NewHorizon.org is an independent, advertising supported website. The owner of the site may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website. NewHorizon.org has not reviewed all available credit card offers in the marketplace.

Privacy Policy Terms of Use

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