Home Money & Finance Should I Get a Secured Credit Card to Build My Credit?

Should I Get a Secured Credit Card to Build My Credit?

by Olufisayo
Secured Credit Card

When you have a poor credit score or no credit score, getting rejected for a loan is frustrating. In order to qualify for a loan, banks want to see your credit report and payment history to determine creditworthiness, which is the ability to pay back a loan.

Unfortunately, for many people with lower credit scores, it is hard to secure a loan with a lower interest rate. The best way to get a loan with a low-interest rate is to build up your credit score by establishing evidence that you consistently make your payments on time.

If you suffer from a low credit score or your company is a startup that is trying to build up business credit, consider using a secured business credit card. Also, can you get a credit card while being unemployed? Click the link to know more.

Secured vs. Unsecured Credit Cards

What are the differences between a secured credit card and an unsecured credit card? First, unsecured credit cards are cards we typically think of when we refer to a credit card. Unsecured credit cards have set credit limits which are determined by the bank or institution you are partnering with.

The credit limits are typically based on a combination of your payment history, your credit history, the number of accounts you have, and other factors. The credit cards are unsecured because the limits are based on your creditworthiness with the bank and do not require the use of collateral.

On the other hand, secured credit cards require the use of collateral and have credit limits that are set by a cash deposit made by the credit card user. For example, if you deposit $5,000 into the collateral account, then the credit limit for your secured credit card is $5,000.

When you swipe the secured credit card, the money will be taken from your collateral account which lowers your credit limit. The credit limit returns to the original amount when the bill is paid off.

How do secured credit cards help you?

There are a few reasons why secured business credit cards are helpful for borrowers, especially for those looking to build their credit. First, secured credit cards are easier to obtain than an unsecured credit card.

If you’re currently struggling with a low credit score, it is likely you will be turned down for certain credit cards. However, if you’re in this position, instead of applying for more unsecured credit cards, which can also negatively affect your credit score because of hard credit inquiries, go the safe route and apply for a secure credit card.

Second, if you have enough cash flow, it will be easier for your application to be approved for a secured card. With a collateral deposit,  the lender has enough money to back your credit in case you’re unable to pay off your debt. The collateral reassures the lender that they won’t lose all of their money, making it easier for you to establish creditworthiness with them.

Third, the secured credit card only allows you to borrow against an amount that you already have, which makes it less risky compared to an unsecured credit card. You’ll have less of overspending. While on the other hand, with an unsecured credit card, both you and the lender will face a higher risk if you’re unable to make a payment, which can cause your credit score to go down.

Lastly, the main reason why secured credit cards are useful is that if used properly, it can help you build your credit over time. For those who are trying to find ways to improve their score, using a secured credit card that reports to the credit bureaus can help you establish more creditworthiness, which means a better score. If you’re making your payments on time every time and the credit bureaus are seeing evidence of this, your score can improve over time.

Final Thoughts

Secured credit cards are an excellent option for people who need a way to build up their credit, first-time users of a credit card, or for those who want a safer option than an unsecured credit card.

Establishing an excellent credit score will pave the way for many beneficial opportunities in the future. For those who need additional help in improving their credit score, companies such as Star Credit Repair can help you find the best credit repair company for your case.

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