Once you have made a few credit mistakes and you have bad credit, it can be very difficult to climb out of the financial hole; luckily, secured credit cards can help rebuild your credit. Credit cards are being used for an ever expanding pallet of transactions these days which is making it more difficult to operate without one. Credit cards are used for Hotels, car rentals, airline tickets, a deposit hold for rental equipment, the list goes on. Using a debit card comes with the risk of fees, such as if a company places a hold on money in your checking account while you are purchasing other things, resulting in overdrafts. If you don’t qualify for a traditional credit card, having a secured credit card for day to day purchases will give you a simpler way to run your finances and it will help you build good credit in the process.

Using a secured credit card is a great way to establish credit

If you have never had any credit and do not qualify for a student or introductory credit card, secured credit cards offer a great way to easily begin building credit. Secured credit cards are also a great way to repair and strengthen credit after events that have damaged credit (Bankruptcy, short sale, delinquency, missed payments, lines of credit being closed by the lender, being sent to collections, etc.).

People are more likely to get approved for a secured credit card because of how they work

Secured credit cards are designed to reduce the risk the bank takes on by loaning money out on credit. Applicants are required to put a deposit down, typically equivalent to the amount they want to borrow on the credit card, for example, a $500 deposit equals a $500 credit card limit. The deposit is what makes the credit card “secured”. If for some reason the borrower, YOU, cannot pay the credit card bill, the bank will then take the money deposited as collateral and close the card. Because the applicant must put a deposit down before the card is approved there is less risk to the financial institution issuing the card. In this way banks can lend to and extend credit to applicants who may not qualify for a traditional credit card.

Another benefit of secured credit cards is that they operate, look, feel, and report to the credit bureau like a normal credit card would. Your credit score will benefit and the fact that you have a card that has an initial deposit will not be held against you.

Before getting a secured credit card take a moment to think about several factors:

What is my purpose for getting a secured credit card? Is it to build credit or repair credit?

What size credit limit do I want to apply for? Do I have the ability to deposit that same amount in cash and not be in financial distress?

How will I use the secured credit card? What is my plan to successfully establish credit or rebuild it without carrying a balance? (paying bills on time, not using more than 50% of my credit limit, purchasing only items that I would be buying anyways so I know I can repay the bill without interest)

Before you get a secured credit card, make sure that you understand the necessity of not overextending yourself. You can only build a good credit score if you make sure to make your payments, so make sure you pay close attention to item number 3 above. Above all else, come up with a strategy that you will stick to and make sure you don’t spend more than you can afford to pay.

If you are ready to take control of your finances and build credit responsibly and patiently, but you can’t get approved for a traditional credit card, then a secured credit card is for you

Establishing and rebuilding/repairing credit have one major thing in common: they both take time. Time is a major component in building credit, and especially in repairing it. Don’t be discouraged by starting with a secured credit card. It is a step in gaining control over your credit score and future credit opportunities.

If the annual fee and APR aren’t too much of a concern when selecting a secured credit card, my recommendation is to go with a bank that you have access to and feel comfortable with. If you have a relationship with a bank not mentioned below, check to see if your bank has any options for rebuilding credit.

Secured Credit Cards are an excellent tool for building and repairing your credit. If you are in a situation where gaining access to normal credit is not an option, and you are ready to establish and strengthen your credit score, I highly recommend the use of a secured credit card. Having a good credit score will give you the ability to buy a house, take out a car loan, and expand your access to credit, so start building or repairing your credit today with a secured credit card.