Secured cards are a great way to build credit, but they’re also an excellent option to use right now. If you have a poor or limited credit history, it’s probably the best choice for you. Here are five reasons why you should consider getting a secured card.
You can graduate to an unsecured card
As per experts at Lantern by SoFi, “Once your credit improves, your card issuer may allow you to move from a secured card to an unsecured card without closing your original line of credit.” Once you’re ready for something more challenging, applying for a secured card is a great way to ensure that getting approved doesn’t happen overnight.
Once you graduate from using your deposit as collateral against late payments (or other defaults), the deposits go back into the account. If not spent on easy-to-pay purchases like groceries and gas, it could become part of a down payment on a car or home—and maybe even help build wealth over time!
Your credit can enhance responsible card use
As you improve your credit, the benefits are clear. You can obtain loans, credit cards and other financial products at a lower interest rate. You can also get a better credit limit and more rewards for responsible card use.
For example, if you have excellent credit but want to take out an auto loan for a new car purchase or refinance your mortgage, a secured card may help you qualify for better rates because your score is higher than it would be otherwise.
You can obtain the benefits of an unsecured credit card
You can get the same benefits as an unsecured credit card holder. Secured cards are similar to unsecured credit cards in many ways. They offer rewards, such as cashback and travel miles, that you can redeem for merchandise or travel experiences. You can also use this card for shopping and leisure activities.
With both types of cards, you’ll have access to cash advances if needed—although interest rates on these charges tend to be higher than with standard purchases—and you can use them to make payments online or over the phone through their respective companies websites.
Your credit limit is tied to your security deposit
If you’re worried about how much credit limit you’ll get on a secured card, don’t be. The amount will be based on your security deposit. For example, if you have $500 in cash to put down as collateral and the card’s balance is $300, your credit limit will be $300 until it reaches $500.
If you don’t use the card, then no money in your account is being used for anything but maintaining its status as “a thing that exists.” You won’t have to pay any interest because no purchases are made with interest rates attached (though there may be fees).
You don’t require good credit to qualify
Secured cards are for people with bad credit, no credit or money at all. They’re designed for people who might be turned down for a regular unsecured card because they don’t have a tremendous financial history or sufficient income.
Secured cards require you to put down a security deposit—typically between $250 and $500—and make payments on that amount each month until it’s paid off.
By understanding the advantages of secured credit cards, you’ll be in a better position to decide which one is right for your needs.
MORE READ ON: SPERO MAGAZINE