Secured credit cards are a great way to build your credit history if you have no credit history or bad credit. By using a secured credit card responsibly, you can show lenders that you are a responsible borrower and improve your credit score.
What is a secured credit card?
A secured credit card is a credit card that requires you to make a deposit before you can use it. This deposit acts as your credit limit, so you can only spend up to the amount of your deposit.
Tips for using a Secured Credit Card
- Make a large deposit. The larger your deposit, the higher your credit limit will be. This will give you more flexibility when using your card and help you build your credit faster.
- Pay your bill on time. This is the most important thing you can do to build your credit. Make sure to pay your bill on time every month, even if it is only the minimum payment.
- Use your card regularly. You don’t need to use your card for a lot of money, but you should use it at least once a month to show lenders that you are active.
- Keep your credit utilization low. Credit utilization is the amount of credit you are using compared to your total available credit. Aim to keep your credit utilization below 30%.
- Don’t close your card. Even if you no longer need your secured credit card, don’t close it. Closing your card will close your credit history and hurt your credit score.
If you’ve been following this month’s articles, you’ll know that the majority of these tips are used when maintaining good credit in general! This is by design as secured credit cards are used to train people on how to have and maintain good credit.
Here are some additional tips for using a secured credit card:
- Read the terms and conditions carefully. Before you sign up for a secured credit card, be sure to read the terms and conditions carefully. This will help you understand the fees and other requirements associated with the card.
- Be aware of the credit reporting process. When you use a secured credit card, your payments will be reported to the credit bureaus. This will help you build your credit history.
- Don’t overspend. Just because you have a credit card doesn’t mean you have to spend money you don’t have. Only use your card for purchases that you can afford to pay off in full each month.
By following these tips, you can use a secured credit card to build your credit history and improve your credit score.
Common Mistakes to Avoid
- Not making your payments on time. This is the most important thing you can do to build your credit. If you miss a payment, it will show up on your credit report and your credit score will take a hit.
- Using your card for unnecessary purchases. Only use your card for purchases that you can afford to pay off in full each month. If you use your card for unnecessary purchases, you will end up paying interest and your credit score will not improve.
- Carrying a balance from month to month. If you carry a balance from month to month, you will be charged interest on your purchases. This will make it more difficult to pay off your debt and it will hurt your credit score.
- Closing your card too soon. If you close your card too soon, it will close your credit history and hurt your credit score. If you no longer need your secured credit card, you can keep it open and just use it occasionally to keep it active.
By avoiding these mistakes, you can use a secured credit card to build your credit history and improve your credit score. If you want to improve your credit score in the next 30 days, don’t forget to join this month’s challenge.
