A good impression comes in handy not only in your personal dealings but also in your financial relations. If you do not possess a good credit score, you might find it difficult to get approved for loans and credit cards or any transaction that requires a good credit score
Using secured credit cards to improve your credit
As the name suggests, a secured credit card requires a security deposit.
A security deposit allows the bank to extend credit to people they would ordinarily not approve of. It can be considered a good starting point for those who are in the path of credit-building or even as a first credit card.
Choosing a secured credit card
When choosing a secured credit card you want to think about why you are going this route.
- Are you rebuilding your credit? You want to choose a secured credit card that reports to at least one of the big credit reporting agencies. Ideally, you want one that will report to all 3.
- Are you trying to add tradelines to a thin report. You should also look for a card that allows a large security deposit. Having a lot of low credit limit cards on your credit report doesn’t really help you. A secured credit card that can allow a large security deposit or will let you add to your initial deposit will help you create something called “comparable credit” banks like to see that when you apply for loans. You should try to have at least 1 $5000 credit card on your credit report.
- What are the rate and fees for the card? Does the card have a reward program? Is there a chance that the secured card will become unsecured? If so when?
Practicing/ Developing Good Credit Habits
Once you have your new credit card, it’s time to start building credit. Here are the top 5 things you can do to start practicing and developing good credit habits.
- Pay your bills on time
- Don’t max out your credit card
- Try to pay your credit card balance in full
- Monitor your credit report
- Be prudent when applying for new credit – applying for a lot of credit can adversely impact your credit score
Going from A Secured Credit Card To An Unsecured Credit Card
With on-time payments, the bank should automatically convert your card from secured to unsecured. They may even give you an increase in your credit limit! But best of all, the banks will return your security deposit back to you!
It usually takes six months to a year to go from having a secured credit to an unsecured credit card. If the bank does NOT convert your card, you can call and find out why. Most of the time you will find you may have had a late payment.
But that doesn’t mean you have accepted their decision! If they don’t upgrade your card after a year. Look for another card. If you have been making your payments on time, your credit score has gone up during this year! You may qualify for an unsecured credit card from another company!