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What is a Secured Credit Card?

Secured credit cards are actual credit cards. They extend to the user a revolving
line of credit and unlike prepaid or debit cards, can carry an outstanding balance
that does require a minimum monthly payment. To be sure they will construct a
credit history, however, borrowers should check that their secured card issuer
reports all borrowing activity to the credit bureaus. Otherwise, the card's use
and repayment won't help the cardholder establish credit.

Why Use a Secured Credit Card?

If you have damaged or limited credit, a secured credit card offers the ability to
build credit cheaply. With that being said, whether or not you actually use a
secured card to make purchases is a matter of personal preference. However, if
your card is managed responsibly it can benefit your credit score; based on the
fact that your activity will be reported monthly to the major credit bureaus. 

What's a Good Deposit Amount for a New Secured Credit Card?

A minimum security deposit between $200 and $500 is generally required to
open a secured credit card. As your credit line   will most likely mirror the amount
of your deposit, the higher the security deposit, the more available credit you will
have. Similarly, the more available credit you have, the more favorably you will be
viewed by credit scoring agencies, such as FICO. As you can imagine, using only a
portion of your credit gets easier with higher credit lines. As a result, we
recommend placing the highest deposit possible when you apply for a secured
credit card and adding to it over time. Just keep in mind that most secured credit
card issuers won’t allow your total deposit to exceed $5,000.

How Should I Use My Secured Credit Card to Improve My Credit?

First and foremost, make sure you don’t miss a single minimum payment.
Second, contrary to popular belief, you do not    need to carry a balance. What’s
actually reported to the credit bureaus is the balance on your statement when it
closes each month. So it’s best to pay off the bill in full every month so you avoid
interest. Third, add to your deposit over time, since higher credit limits look better
on your credit report. Fourth, after your card is open, setting up automatic e-
payments is recommended. That ensures your payments will always be on-time.
Finally, make sure to only spend up to 30% of your limit each month, as lenders
like to see a low utilization ratio (this is the balance on your secure card at the
end of the month in relation to your credit line).

How Can I Move From a Secured Credit Card to an Unsecured Card?

In general, issuers will approve you for an unsecured card after about a year of
responsible secured card use (i.e. making on-time payments to all credit cards and
loans). Switching from a secured card to an unsecured credit card typically occurs
in one of the following ways:
1. You close your secured card after getting approved for an unsecured card
– As long as your balance in paid in full, your secured card issuer will send
you a check for the amount of your security deposit.
2. Your issuer offers you a credit limit increase – If the bank that issued your
secured credit card reviews your account   and concludes that you have
proven yourself a responsible credit user, it might offer you a credit limit
increase. This would convert your secured credit card to a partially unsecured
card, and your deposit will not be returned until you  close this account.
3. Your issuer converts your account to an unsecured credit card account
– In
this scenario, your existing account will remain open but your deposit
will be returned to you via check or as a statement credit.
* The information provided on this page is for educational purposes only and DOES NOT in any
way represent the programs or policies of the issuing banks or credit cards that GreenPointe
Financial is affiliated with.
 
 
 
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