How Can A Secured Credit Card Help My Credit Score?

Someone who has had a downgrade to their credit score may not even realize it has happened until they go to apply for a personal loan or a credit card and are denied. Your credit score can be downgraded for any number of reasons but the most common reason is for not making your bill payments on time or missing a bill payment more than once. Doing this on a regular basis can turn your credit score on its head and leave you in a situation where you are right back where you started when you graduated high school and had no credit whatsoever. If you find yourself in this situation and are looking for ways to rebuild your credit score, consider applying for and using a secured credit card.

A secured credit is just that. It is secured by a certain amount of cash you hold in a bank account, usually a savings account. The bank demands that you keep this money in your bank account and leave it untouched as a form of collateral.

Credit cards are typically unsecured debt meaning that people can essentially walk away from by declaring bankruptcy. With a secured credit card, you have guaranteed payment of any outstanding balance by maintaining the credit limit amount on your card in your bank account.

Using a secured credit card can be a great way to actually save money because you will never be allowed to spend more money than you actually have on hand. They can be very helpful for people who live on extremely tight budgets and who need to keep careful track of how much they spend each month. You will probably be reluctant to put money on a credit card if you have had to put that money out up front.

Using a secured credit card allows you to control how much you wish to spend each month and because once the money is gone, the credit being extended to you is gone, you can not spend more than you can afford.

Using a secured credit card is a good way to reestablish your credit score because the credit card company will report on a monthly basis to the credit bureau. So every time you make your monthly payment you demonstrate that you are able to handle credit. Using a secured credit card will help you reestablish your credit score in a way that a prepaid credit card can not. A prepaid credit card is basically a glorified debit card insofar as you pay in advance for purchases you wish to make.

Credit card companies do not report to the credit bureau about the activity on a prepaid credit card because you are not technically using any credit, you are merely using your own money which is being held in escrow by the credit card company until you charge something.

A secured credit card can be helpful to someone who is starting out and wishes to establish themselves as being credit worthy. They will be able to establish a good credit score in a relatively short amount of time.