Do You Need Secured Credit?

What is secured credit? To obtain a secured credit card, you must first make a deposit. The amount of deposit required varies, but to get a $500 credit limit, you may have to deposit between $500 and $1,000, though you may be able to find a card that requests a much smaller percentage. Your card works in exactly the same way as an unsecured credit card, unless you can no longer keep up with your bills. If you close the account or go about half a year without paying, the company will keep your deposit to cover the cost of your purchases.

One major plus to secured credit cards is they are available to almost anyone. For many people with bad or no credit, they are the only option. They also represent a good way to start rebuilding your credit score. Because the limit is low, there is less temptation to overspend, and it is much more difficult to get into debt with a secured card.

While certainly more difficult, it is not impossible to get into debt. If you cannot pay and start accumulating interest and fees, it is possible to end up with a bill that is larger than your initial deposit. Also, the service charges and fees tend to be higher with secured credit than with unsecured credit cards. You also must have the cash to pay the deposit to open a new secured credit account.

While some people find debit cards to be a safer alternative, they do not have all the features of a secured credit card. With a debit card, you can only spend what is in your account, and the money is withdrawn automatically when you make a purchase. Because there is no bill to pay, you cannot build your credit score with a debit card. If you're looking to make a major purchase further down the road, like a house, a car or paying for education, a good credit score is essential.

In order to maximize the credit-building power of these cards, it's important to follow several guidelines. While you shouldn't get carried away with spending, using the card on a regular basis will help your credit score. You will want to pay the bill completely each month, as stated in your agreement. Once you have established some credit, taking out an unsecured credit card, getting a car loan or a mortgage will be easier. Keep up your good spending and bill-paying habits, and a high credit score will be within your reach.