Secured credit cards offer a solution to poor credit

By Sabrina Karl

For anyone with a very low credit score, or the inability to even qualify for a credit card, it can seem difficult to solve this problem. In order to show you’re creditworthy, you have to use credit responsibly. Yet, without an existing track record, no one will offer you a card.

Secured credit cards offer one solution. By combining the benefits of a credit card with the concept of a security deposit, those otherwise denied credit can get a card that can put them on a road to better future options.

Here’s how it works. If approved for a secured credit card, you’ll be asked to pay a security deposit to the card company. This deposit works the same way as a security deposit when renting an apartment. It is held for you and if all goes well, you’ll get that deposit back later.

The deposits on secured credit cards can vary, depending on how much credit limit is being offered. For instance, some secured cards extend a $200 credit line with a $200 security deposit, while some may offer $200 of credit for a $100 deposit.

While a $200 credit line is small, using the credit responsibly over a period of time can lead to being rewarded with increased limits over time. Also, making repeated on-time payments on the secured card can ultimately lead to qualifying for a conventional credit card with a higher limit. Remember: making late payments is the number one biggest hit to a credit score, so it’s crucial to pay at least the minimum amount on time, every time.

Lastly, confirm that the secured card you’re applying for indicates it will report your payment history to one or more credit bureaus. Without that, you won’t get the benefit of building up your credit score.