How Secure Cards can help your Credit Score

Secured credit cards are a viable option for those with poor credit histories to re-establish good credit and a better choice than turning ot a subprime lender. They are also often the only viable means for a young person who has never used credit to obtain their first step on the credit ladder, and thus establish that all important credit score. The secured cards keep both types of borrower on a secure leash until they have proven themselves to be responsible with their use of credit.

As a tool to help someone improve a credit score, which is dismal due to previous credit history, a secured credit card stops them from over using credit. A pre paid deposit equal to the amount of credit available on the card is required by the lender. As both a bank held deposit plus card fees are necessary, then a secured card is useful in making a previously derelict credit user more responsible.

The deposit may sometimes be placed in an interest bearing account and will only be touched by the lender if the borrower is in default on the secured card. It will not be used automatically to cover a late or missed payment, so these would be recorded as such on the credit file, and common late payment charges would be applied. They would also show as a negative on the credit report thus lowering the credit score.

Unfortunately a secured card is often the only way in which a person who has not used credit before can actually obtain a credit card. This type of person will have no credit score at all so there is no available information to assess what kind of risk they can pose. By using a secure credit card they can take the first steps to establishing a credit score, but not without paying fees. However, by having to deposit a sum with the bank prior to obtaining the card it sets up a good saving routine, and they are more likely to use the card responsibly.

Both types of users need to ensure that their activity on the secured cards is recorded with the three credit bureaus otherwise it does nothing to help improve their credit score. It is necessary to ensure this is the case before signing. It also pays to shop around wisely for the card with the lowest fees attached and to not pay an application fee. Beware of any lenders who apply fees which eat into a large proportion of your available secured card credit.

To use the card in the most effective way to help your credit score you must make each payment on time and not exceed your credit limit. Ideally you should treat the card in the same way you would an unsecured card and not use more than 30% of the available credit. If you can commit yourself to paying the full balance off each month by automated debit payment then the interest rate which the card carries should not concern you, thus it is more prudent to opt for a higher interest rate rather than high fees.

By using a secured card responsibly a person with a bad credit history can slowly improve their credit score, whilst a new user should aim to make the transition to an unsecured card within a year, when fee free cards will be available. As the secured cards are often associated with tardy payers due to their use by people with previous defaults, it is wise for the person with no credit history to request the lender to keep the secured status of the card hidden, so that it won’t show on their credit file.

When you are able to transition to an unsecured card be sure to use the same good credit habits you have shown with the unsecured card and your score will continue to improve. You will also be able to secure your original bank deposit back, plus interest if it is due.