There’s a popular meme making the rounds that states, “Christmas Rules: #1. Don’t go into debt...
The standard advice about how to build credit is to get a credit card and use it responsibly. This line is parroted over and over because it’s true, applying for a credit card and paying your balance in full every month is one of the quickest ways to prove yourself creditworthy. But if you don’t have a credit history, or you do but it’s particularly spotty, how are you supposed to qualify for a credit card at all? Thankfully, there is another option for you if you fall into one of these populations: enter the secured credit card.
What is a Secured Credit Card?
A secured card looks and behaves almost exactly like a traditional credit card. The difference is that with a secured credit card, you must first make a deposit of your own money to “secure” a credit line. This initial deposit is used as collateral by the lender, meaning that if you fail to pay, you forfeit the deposit. Typically, your credit limit will not exceed the amount of this deposit. Also important to note is that many secured credit cards require an annual fee, but the increase to your credit score is often worth the price.
Because you’ve already put down the full amount of your credit limit, secured credit cards are extremely low-risk to credit card companies or financial institution. This means that they’re easy to qualify for, making secured credit cards an excellent way to raise or build your credit score.
How Does it Work?
Raising your credit score or building credit with a secured credit card can be done in five simple steps.
- Apply for a secured credit card.
As we’ve mentioned, secured credit cards are not difficult to qualify for, even if you have a low credit score or a non-existent credit history. Our VISA Credit Builder secured card is a great option because it’s widely accepted and specifically designed for those with low or no credit.
- Use the card responsibly.
Even though you’ve put down a deposit, it’s essential that you use the card responsibly. This means, at a minimum, keeping your balance low enough that you can pay it in full every single month, and make timely payments. If you are careless with your secured credit card, you could do more harm than good to your credit score.
- Monitor your credit score.
No matter what your financial goals, you absolutely must monitor your credit report. You are entitled to one free credit report per year. Keeping tabs on your report is the only way to make sure your efforts are working. You can also spot any errors before they harm your score.
- Wait patiently.
No matter what, raising your score is going to take time. If you have no credit history, it will take six months or longer before you are issued a credit score, and even if you already have a score, change takes time. In the meantime, you should be sure not to shoot yourself in the wallet by neglecting other factors in your credit score. For instance, you should avoid missing payments on other loans.
- Upgrade to a non-secured card when you’re ready.
Within a several months to a year, you may see your credit improve to the point that you may qualify for a regular credit card. At this point, it may be feasible to consider transferring your balance to an unsecured card, if possible, or opening a new card that has better benefits. Just be sure that you don’t let your shiny new card lure you into bad spending habits.
Get Started Today
If you need to raise your credit score or build a fresh credit history, Marine Federal Credit Union has you covered. Get in touch with us today for information about how our VISA Credit Builder card can help you secure your financial future.
Federally insured by NCUA. Membership and credit eligibility required.
Information appearing in this article is obtained from sources we believe are reliable. The information may not be a complete statement of all available data and is not guaranteed as such. Marine FCU is not responsible for the contents of this article and advises its membership to investigate claims before following the information provided.