Do secured credit cards really can help raise my credit score?
If you’ve bad credit or no credit history, the secured credit card possibly all that financial institutions is willing to offer you. Yes, it is essentially a savings account with a debit card, but you repay it like a credit card. If you use it and “pay it off” regularly, the issuer in many cases will extend a larger line of credit, and based on the terms of your card, will eventually convert your initial secured payment into a direct payment onto the credit card, or a check which refunds your money to you.
Think of it like credit card “training wheels,” where you demonstrate that you can responsibly use a line of credit, one that has a safety net designed to protect the card issuer.
more information about secured credit cards
How do secured credit cards work?
Essentially, you hand over a certain amount of money to the bank & they bank deposit it into the account and open a credit account with (usually) the same amount in credit as you deposited. You earn interest on the money depostited. As you use your card, charges build up like any other credit card & you pay them, preferably in full, each month. If you miss your payment, it comes from the money deposited, along with the usual late fees, over limit fees, etc., that credit cards come with. This also reduces your overall credit limit and shows as a late payment on your CBR. Never a good idea to miss a payment on a secured account as you get the old double whammy, late fees & reduced credit limit. As you pay monthly, especially if you pay your balance in full monthly, you get reported as a good repayment history on you CBR and, in 6-12 months, depending on the bank you use, you can get your initial deposit back, if you have maintained a good history. Normally, the bank will require at least 6 months of ontime payments before they will release the deposited funds. Miss the 6th payment in a string of good payments, and you start over.
A secured credit card will help build your credit history. Of course, you have to use it responsibly and make regular, on-time payments. Even though you’re basically spending your own money, all the activity is reported to the credit bureaus as if it was a standard credit card.