If you're looking to open a secured credit card to either boost your credit score or start building credit, it's important to pick the right secured card.
The best secured card will report activity to the three major credit reporting bureaus (Experian, Equifax, and TransUnion), come from a reputable lender, and give you the option to upgrade to an unsecured card, among other features.
This article will give you the tools you need to help pick the best secured credit card. Keep reading to find out more.
What's a secured credit card?
A secured credit card requires you to put down a cash deposit that's usually equal to the amount of credit you'll have available.
Secured credit cards are typically available to borrowers with bad credit or no credit history since the issuer is protected from losing money. If you can't pay your balance, they can simply keep the collateral. You'll receive your cash deposit back when you either close the account (assuming you're in good standing with the lender) or upgrade to an unsecured card.
4 ways to pick the best secured credit card
Here are 4 factors to consider when picking the best secured card:
- You can afford the minimum deposit: Most issuers have minimum secured card deposits of $200-$300 though you can put in more money to have a higher credit limit. If you can't afford the minimum amount, a secured card might not be the best option for you.
- You can upgrade your account: Some secured card lenders allow you to upgrade. This means you'll receive your cash deposit back and move up to an unsecured card. Upgrading is good for your credit since you're able to maintain the same account. Because one factor of your credit score is the age of your accounts, you'll show a longer account history but still receive a new card.
- The lender is reputable: You should check that the card lender is reputable and not a predatory company. Some secured cards have high APRs and fees. Make sure to do your research and look for a secured credit card with no annual fee before you sign on the dotted line.
- The card reports activity: Be sure that your card reports activity to the credit bureaus. Otherwise, your card won't help improve your credit. Your card will ideally report activity to all three major bureaus.
How to use a secured credit card
Here are a few ways to best use your secured card:
- Try to pay your balance in full each statement to avoid having to pay interest. This will also help you look like a responsible spender to your lender.
- Pay your bill on time. On-time payments are the biggest factor of your credit score (35%).
- Keep your credit utilization ratio below 30%. To maintain a low ratio, you can limit your spending, raise your credit limit, or both.
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Original Source: How to Choose the Best Secured Credit Card
