What Do You Actually Know About Your Credit Score?
by Analisha Santini
February 14, 2020 .3 min read
Having a bad credit score can affect your life in monumental ways. You can be denied for credit cards, loans, housing, and can even be cringeworthy on a date!
If you want your life to get an upgrade, you need to level up your credit. But how?! Well, let me introduce you to a little credit hack: the secure credit card.
What is a Secured Credit Card?
A secured credit card will be your best friend for building credit quickly. If you’ve had bad experiences with credit cards, like me, you might not be too eager to jump back into getting one again. Or you might not get approved for one due to your crappy credit score. Not only are secured credit cards a safe way to build credit, but they are designed for people who have low to no credit, therefore you have great approval odds.
A secured credit card is a real credit card but with training wheels. How it works is you are required to pay a deposit equal to your line of credit. For example, some cards require a $200 deposit, so your credit limit is $200. The deposit then acts as a buffer if you fail to make a payment. If you fail to make a payment, the issuer can deduct what you owe from your initial deposit.
Once you can get your credit score up to 750, you are eligible to be rewarded with lower interest rates on loans, and credit cards.
Anything lower than 620, and you are considered a risky investment. If you happen to get approved for a credit card or loan, the interest will be much higher costing you thousands of dollars in interest.
Luckily, secured credit cards are a sure way to start building your credit quickly and intentionally.
5 Ways a Secured Credit Card Can Boost Your Poor Credit Score:
1. It's Designed for People with Bad Credit
Secured credit cards are designed to help people improve their bad credit scores. They are the perfect tool to start building your credit if you have a low credit score. Therefore, they are easy for people with low credit to get approved and have access to them.
2. There's a Safety Net
What makes a secured credit card "secure" is that it is backed by your initial deposit. This gives you an extra buffer in case life happens, and you can't pay your minimum balance. If you can't pay it, that money is deducted from your deposit. This will also help your credit score not be affected poorly.
3. Gives You Practice Building Credit
Since your deposit is a buffer, secured credit cards are a safe way to start building credit. While you have your secured credit card, you can gain experience budgeting and making on-time payments. Secured credit cards are also the perfect way to start practicing healthy credit-building habits like keeping your balance less than 30% of your credit line, making on-time payments, and paying off your balance before the due date.
4. It Can Help You Get An Unsecured Credit Card
The ultimate goal of a secured credit card is to build your credit and help you graduate to an unsecured credit card. Most issuers have unsecured credit cards that you can transition to if you have a history of making regular and on-time payments.
5. Develop a Credit History
Having a secured credit card will allow you to start building a credit history, and thus your credit. Since they are real credit cards, most issuers will share your payment history with the three major credit bureaus, who track your credit history.
Before You Start Swiping
With consistent and deliberate action, using a secured credit card can raise your credit score in a matter of months. But before you start swiping, investigate different issuers, their hidden fees, and how they report your credit history. It’s also good to get more information on the interest rate of your secured card and how it can affect your balance. Make sure to keep a close eye on your credit score with a free credit app like Credit Karma and Mint.
Building your credit is not impossible, it just takes education and diligence. And a secure credit card is the perfect way for you to build your credit safely and responsibly.
Analisha Sanitni is a copywriter, bargain fashionista, and student-debt owing millennial. After overcoming many of her own financial obstacles, she hopes to share some helpful tips to avoid money-sucking pitfalls.