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If you plan to apply for a school loan, buy a home or lease a car, it helps to have a positive credit history. But if you have bad or limited credit, you’re not completely out of luck. A secured credit card is one option that can help you build—or rebuild—your credit score.
What is a secured credit card?
Secured credit cards function a lot like traditional credit cards. The primary difference is that with a secured card, you pay a cash deposit upfront to guarantee your credit line.
While credit history may be used to determine eligibility for a secured card, the line of credit it offers requires a security deposit. This security deposit acts as a safeguard for banks to cover any purchases, should you miss payments. Making your monthly payments on time is just as crucial with a secured credit card as with a traditional card. Remember, if you default on your payments, the card issuer may keep your deposit.
A useful tool for rebuilding your credit
If you have bad credit, simply relying on cash, prepaid cards or debit cards to make your purchases will do nothing for your credit score because the activity doesn’t get reported to the major credit bureaus. When handled properly, using a secured credit card to help establish or rebuild your credit can demonstrate to your credit card issuer and to the credit reporting agencies that you are a responsible consumer who used credit wisely. To help build your credit—and to avoid interest charges—pay your balance in full every month, before the due date.
| Secured credit card | Unsecured credit card | |
|---|---|---|
| Application required | ||
| Requires security deposit | ||
| Interest may apply | ||
| Helps build credit | ||
| Lower credit limit | ||
| May report to credit bureaus |
Who should consider a secured card?
If you have no credit history, a secured credit card can be a first step to begin building one. If you have a low credit score that makes it difficult to qualify for an unsecured credit card or other loan, a secured credit card can help you rebuild your credit.
How does a secured card work?
Secured cards are issued by most well-known credit card companies and banks. Similar to a credit card, you have to apply for a secured card. Once you’re approved, you can use your secured card for things like buying groceries or for booking a vacation—everyday expenses that you can repay immediately.
Five smart moves for using your secured card responsibly
Slide 1.1
Before you apply for a secured card, shop around. Keep in mind fees, interest rates and required security deposits.
Slide 2.1
Don’t charge excessively. Instead, purchase things you can pay off right away.
Slide 3.1
Set up payment alerts so that you don’t miss a payment. One late payment can hurt your credit.
Slide 4.1
Set up automatic monthly payments to help avoid late fees and interest charges.
Slide 5.1
Pay more than the monthly minimum amount owed. If you can, make more than one payment a month.
When will I qualify for an unsecured credit card?
If you use your card responsibly, your credit score should improve over time. Once your score has improved, you have several options. You can keep your secured credit card, close it out, or ask your issuer about upgrading to an unsecured card, which may be better for your credit score than opening a new account.
What’s next?
Now that you have an unsecured card and have successfully improved your credit, you may qualify for lower interest rates on mortgages, cars and other big-ticket purchases.
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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America Corporation and/or its affiliates assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management. ©2024 Bank of America Corporation.
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