Rebuilding Your Credit with a Secured Credit Card – What You Need to Know


If your credit has taken a few hits along the way, you want to start rebuilding your reputation as soon as possible. A poor credit score will impact everything from the interest rate you pay on your car loan to whether you qualify for a mortgage. The faster you start rebuilding your credit the easier it will be to recover your financial life.

One of the most powerful tools in rebuilding your credit is the secured credit card. If you have a low credit score or a past bankruptcy on your record, you may not qualify for a traditional unsecured credit card. Fortunately, even the credit challenged can usually get a secured credit card, and that card can be the key to rebuilding good credit.

What is a Secured Credit Card?

An unsecured credit card requires no collateral, but a secured credit card is different. When you open a secured credit card account, the amount you can spend is directly tied to the balance in a linked bank account.

Secured credit cards require cardholders to deposit money in a bank account at the same institution, and the credit limit on the card is tied to the balance of that account. Linking the bank account and credit line ensures the lender that the money will be repaid, but it also prevents the borrower from overspending or getting in over their head.

How Can a Secured Credit Card Rebuild My Credit?

One of the biggest parts of your credit score is your payment history. If that payment history has taken a few hits along the way, your credit score probably suffered as a result.

One of the fastest and surest ways to rebuild your credit and beef up your credit score is by making your payments on time. Since it is impossible to overspend with a secured credit card, it will be easier to make those on-time payments.

Paying off your secured credit card month after month is one of the best ways to rebuild your credit. If your past credit woes mean you do not qualify for a traditional credit card, a secured card can be a smart alternative.

It is a good idea to shop around carefully for a secured credit card, since the costs and fees associated with these financial instruments can vary widely. Some secured credit cards charge an annual fee, while others charge for things like adding money and checking balances. Finding the lowest cost secured credit card will allow you to rebuild your damaged credit while keeping more money in your pocket.

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