Getting a credit card can be a challenge. You need to fulfill stringent requirements, have a stable income, and pass a harsh credit check. If your creditworthiness is less than stellar – or you have no credit history at all - the credit card company will probably reject your application.
Credit spills into many areas in your life, but how are you supposed to apply for a credit card if you have no credit history to speak of, or have bad credit history? Fortunately, there is a way that can help you get the credit card you want – regardless of your credit history. All you need is to have a deposit account in a bank and you’ll get a credit card.
What is a Secured Credit Card?
The fastest way to build credit from scratch is to apply for a secured credit card. A secured card requires a cash collateral deposit that becomes the credit line for that account. A secured credit card has all the benefits of a regular credit card -rewards, cash advances, etc. - but it requires a cash deposit as collateral against you defaulting on your payments.
Obtaining a secured credit card can allow you the benefits of owning a credit card while giving you the opportunity to build a history of responsible credit use with on-time payments. The small credit limits and security deposit requirements are there to protect you from getting yourself into the poor payment history that may have plagued you in the past.
How Does A Secured Credit Card Help Improve My Credit?
The best thing about secured cards is that it helps you build your credit since it functions like a regular credit card. But how can a secured credit card help boost your credit score?
- Make payments on time - By establishing a positive credit history, you are impacting your payment history which is worth 35% of your credit score. The more on-time payments you have the more improvement you will see in your scores. In most cases, your payment behavior is reported to the credit bureaus – TransUnion, Experian and Equifax. By paying off your bills on time, each month and following the terms and conditions can improve your credit score. One late payment can significantly damage your credit score, especially when you're just getting started. Show your serious commitment to being credit-worthy by never missing a payment.
- Use card responsibly - By using your card responsibly, you affect your credit utilization, which is worth 30% of your credit score. The goal of having a secured credit card is to show creditors that you can be responsible with credit. Keep track of the purchases you make and avoid using your card like a regular credit card. With a secured card, make sure you pay off the previous month’s balance in full by the end of the current month and keep your utilization rate between 7 and 20%.
After you’ve established a history of using your secured credit card responsibly you can either request to be moved to an unsecured credit card. Improvements don’t happen overnight and it could take at least 6 months to see significant improvement.