Whether you believe in credit cards or not, they are a necessary evil. It is nearly impossible to make a hotel or plane reservation without one. Not to mention that being in real estate, I see them utilized quite often to help my clients build (or rebuild) a shaky credit rating. Credit cards are a fact of life. However, that doesn’t mean that just any secured card will do. There are a few questions you need to ask before securing your newly secured card.
But people who have never had credit or need to repair a poor credit history may not qualify for a regular credit card. For them, a secured credit card may be the only way to establish, or re-establish, credit.
1. Can you explain a secured card versus and unsecured card?
Secured cards require a deposit as collateral. I have seen the deposit range from $300 to $500 on average (minimum). From there, the bank will give you that credit line, and some will even let you add to that account and use it as a savings account until your credit is good enough to receive a refund of your deposit (sometimes with interest).
2. How do you find a secured card?
You could just Google it, but in my experience, I have found that using free tools like CreditKarma.com will give you a great credit simulation tool and direct you to the right secured card based on your credit score – which you can also get for free on their website.
3. What about fees?
Most of these cards come with annual fees and high interest rates. If you opt to use Credit Karma, you will get a side by side comparison of each secured card, which will oftentimes help you make an educated decision, versus an uneducated guess.
4. Won’t a debit card do the same thing?
While debit cards come in handy, these cards don’t report to the credit bureaus like secured and unsecured cards will do. This is why it is important to know what’s in your wallet and use it wisely.
5. What else do I need to know?
Secured cards are a great way to build credit, and many secured card providers will increase your credit limit without a deposit once or twice a year, providing you pay your bills on time and don’t get behind on your account. If you aren’t the organized type, set a reminder on your smartphone or desktop to alert and remind you when that bill is due, or enroll in your bank’s autopay program so that you never miss a beat…or a bill payment.
Your credit is important, even if you have made mistakes in the past, secured cards are a great way to rebuild your credit foundation, and knowing where and how to find a reputable card is highly important.
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