Your personal credit is essential. It can help you buy a house, get a better interest rate on a loan, and qualify for better insurance plans. It can even snag you a larger line of credit.
However, you don’t just happen upon a good credit score; you have to earn it. Having bad credit or even no credit can set you back, no doubt. But there are ways you can get yourself on the right track toward building the credit score you need.
One such solution is a secured credit card. This card differs somewhat from other credit cards because a deposit is required to open an account. However, your deposit typically reflects the line of credit you receive, so a $100 deposit will yield a credit limit of $100. In addition, the deposit minimizes the risk to the credit card company, allowing them to work with individuals with poor or unproven credit.
A secured credit card is a great way to build your credit when your score is low or lacks a credit history. When coupled with a debit card for daily expenses, you can take your credit score all the way to the top. Here are six benefits you’ll enjoy when you get a secured credit card:
Higher-end credit cards offer tantalizing incentives such as lofty credit limits, competitive interest rates, and unbeatable rewards programs. However, to qualify for such a card, you’ll go through an approval process that leaves many applicants on the outside looking in. Even people with good financial habits can have their applications denied at first.
Because of the required deposit for a secured credit card, the approval process is much easier. As a result, cAs a result, credit issuers can afford to extend a line of credit to those who might be rejected for every other card out there. That said, you can still be declined a secured credit card if you have a history of missed payments or recently filed for bankruptcy.
Perhaps you’re aiming for a more exclusive card or trying to qualify for a better interest rate on other loans. If so, a secured credit card will help you build your credit up to the needed level. Unfortunately, it’s easy to feel stuck with a bad credit score. With responsible, prolonged usage of a secured card, though, you can get back on track.
Be aware that having a credit card doesn’t magically boost your credit score. You need to use it regularly and be diligent in paying it off. More than anything, a secured credit card puts you in a position to improve your credit. The effort of using it wisely is ultimately up to you.
Just because you’re on a starter credit card doesn’t mean you’re necessarily disqualified from earning rewards. There are secured credit cards out there that offer rewards programs. These encourage good spending behavior and keeping your card active, just as with any other card.
Some secured credit cards offer cashback rewards — usually 1% or 2% — on the purchases you make. Be sure to take advantage of cash rewards by not letting late payments and interest snatch them away from you.
You can also find secured credit cards that offer more tailored rewards, such as customer points or airline miles. Amazon even has a secured credit card if you’re looking for Amazon Prime benefits.
Not everyone who applies for a secured credit card does so because their credit score has hit rock bottom. For many, it acts as a starter credit card to get a feel for how one works before expanding their usage. A teenager or college student, for example, probably shouldn’t have an overly generous credit line they may be unable to handle.
A secured credit card will teach you how to make timely payments while providing a comfortable line of credit to work with. You’ll also become familiar with the apps associated with your card and features you can implement to improve your spending habits. For example, iFor example, it’s much easier to rebound from a maxed-out credit card with a $200 limit than one with a $5,000 ceiling.
You won’t be confined to a secured credit card forever if you use it wisely and build up your credit. When your card activity shows you’re ready, the issuer will likely allow you to upgrade to a regular credit card. In addition, such cards offer an expanded credit limit and additional perks. Thus, your secured credit card acts as a launchpad that will catapult you forward when aimed in the right direction.
Your credit card company may offer the upgrade, or you might have to apply to take that next step. Don’t apply for an unsecured credit card until you feel you’re ready, though; there’s still a chance your application could be declined. Also, while being denied a credit card doesn’t hurt your credit score, the inquiries that come with each application can. That’s why you’ll want to keep those inquiries to a minimum.
Secured credit cards aren’t only for personal use. While personal credit might help you get a business started, good business credit enables you to keep it running strong. For example, yFor example, you can get a secured business credit card to help get your startup going.
Having a business credit card helps you keep your personal expenses and business expenses separate. This is a good thing, as intermingled finances are a problem that can befuddle even the wisest of entrepreneurs.
Starting with a secured credit card helps your business in the same way it assists with personal finances. It bridles your financial habits, so you’ll make good long-term decisions. In addition, a good business credit score will enable your budding company to qualify for the loans it needs to expand.
When you’re ready for a secured credit card, weigh your options and select the card that best fits your needs. Set goals to monitor your spending and stay on top of payments. Instead of simply serving as a spending buffer, your new secured card will help you gain financial independence.