Apply for a Secured Credit Card and Improve Your Credit Score

We spoke last time about using credit cards to build your credit score. However if you do not have a credit score or if you have bad credit, it may be difficult to obtain a credit card to begin with. This is where a secured credit card can help.

A secured credit card is a credit card where you have provided cash to be held as collateral against the balance owed on the card. Financial institutions may require a deposit equal to any where from 50% to 125% of the credit limit. This is to allow for interest charges. So if you want a credit card with a $500 limit, you would be required to provide $625 as security. The money is then held in an account in your name, but with a hold on it so that it is available to the card issuer should you default on your payments. The amount required for security depends on how “risky” you are as a borrower.

The interest rate charged on secured credit cards is higher than on traditional unsecured cards. Again, there is a greater risk of default on these accounts so the companies price them accordingly.

After you have held the credit card for a period of time, perhaps six to twelve months, you can reapply for an unsecured credit card. You will have demonstrated your responsibility at handling revolving credit. You will have improved your credit score by using the credit card regularly and making your monthly payments on-time without fail.

If you have bad credit history or no credit history offering cash as security could get you the VISA or MasterCard you need. The responsibility then falls to you; ensure that you manage it responsibly. Raise your credit score by making small purchases regularly and make all of your monthly payments on time. You will be on your way to converting the account to an unsecured credit card in no time.