Secured credit cards can be a good option for individuals who are either new to credit or have a poor credit history. Unlike traditional credit cards, secured credit cards require a cash deposit as collateral, which serves as a security measure for the lender in case the borrower fails to make payments. This makes secured credit cards a lower risk option for lenders and can often result in more favorable approval rates for applicants with less-than-perfect credit. Additionally, responsible use of a secured credit card can help build or improve one’s credit score over time, making it a useful tool for those looking to establish or repair their credit.
People who should consider getting a secured credit card:
1. People with no credit history:
If you are new to credit and have no credit history, it can be challenging to get approved for a traditional credit card. A secured credit card can help you build credit history by making timely payments.
2. People with a low credit score:
If you have a low credit score, you may find it difficult to get approved for a regular credit card. However, secured credit cards can be a great way to rebuild your credit score by making timely payments and keeping your credit utilization low. One of the main benefits of using a secured credit card to rebuild your credit score is that the credit card issuer reports your payment history to the credit bureaus. This means that if you consistently make on-time payments, your credit score will gradually improve over time.
3. People who have defaulted on their loans:
If you have defaulted on your loans in the past, your credit score would have taken a hit. In such cases, secured credit cards can be a good option to show creditworthiness by making timely payments.
4. Students or first-time earners:
If you are a student or just starting your career, you may not have a high income or a credit history. Secured credit cards can be an excellent way to start building credit, even with a low income. As a student or first-time earner, using a secured credit card responsibly can help you build credit history, which is crucial for future loans or credit applications. Making timely payments and keeping your credit utilization low can help improve your credit score and increase your chances of getting approved for traditional credit cards or loans in the future.
5. Self-employed individuals or freelancers:
If you are self-employed or a freelancer, you may have an irregular income or face challenges in proving your income to traditional lenders. In such cases, secured credit cards can be an excellent option to build credit history without the need for income proof.
Bottom line:
A secured credit card can be a good option for those who have limited or poor credit history, as well as those who want to rebuild their credit. It works by requiring the cardholder to make a cash deposit upfront, which serves as collateral for the credit limit. This reduces the risk for the issuer and allows them to offer credit to individuals who may not otherwise qualify for an unsecured card.