How Can Secure Credit Cards Help Your Credit Score

Both secured and unsecured credit cards can be used to pay for goods and services.

Merchants do not require or even know if the credit card you are using is secured or unsecured. However, the decision about whether you should have a secured or unsecured credit card is one you should make carefully as using a secured credit card can actually help improve your credit score.

How can secured credit cards help your credit score? It’s an important question and before deciding to expand your credit card selections by opening a new account, you should consider the answer to this question. For people with poor credit or no credit, it is essential for you to consider the benefits of a secured credit card.

An unsecured credit card does not require you to have a savings account associated with your line of credit. Conversely, a secured card requires that you open and maintain a savings account as security for your line of credit. The required savings deposit for a secured card can range from a few hundred to thousands of dollars, and your credit line is determined as a percentage of the amount deposited in this account. Typically unsecured cards allow you to charge between fifty and one-hundred percent of your deposited amount. There may be an application and processing fees for maintaining these accounts. Before applying, be sure to ask what the total fees are and whether they will be refunded if your application is denied. Additionally, be aware that a secured card requires an annual fee and may have a higher interest rate than an unsecured card.

Despite these costs and requirements, there are big advantages to obtaining a secured line of credit, especially for people who have poor credit or no credit. A benefit is that the bank maintaining your account will pay interest on your deposit, so you will actually accrue interest while your money is in the account. However, the biggest advantage of a secured credit card is that with each item you purchase with the credit card and pay off, the better your credit score will be. Having a secured line of credit shows creditors and others who check your credit report that you have both the funds to make these payments and the ability to obtain credit. Ultimately, the more successful payments you make the more credit you obtain and the higher your score goes.

Understandably, opening a secured line of credit may seem undesirable given the added requirements and upfront costs. However, if your goal is improved credit using a secured credit card will help improve your credit score.