A secured credit card works just like a traditional credit
card. That means you can use it for everyday purchases as well as for
transactions where cash or debit cards aren’t accepted (like reserving a hotel
room or paying for a car rental).
A secured credit card can help you build or re-establish
your credit. However, if you default on your payments, the card issuer may keep
your deposit. This means that making your monthly payments on time is just as
crucial with a secured credit card as with a traditional card. In fact, it may
have even harsher penalties.
Most secured cards are reviewed periodically. If the review
is successful, you may qualify to move to an unsecured credit card and receive
a refund of your collateral deposit. Eventually, responsible credit behavior
could help you qualify for lower interest rates on mortgages, cars, or other
big-ticket items. When handled properly, using a secured credit card to build
or rebuild your credit can help demonstrate to your credit card issuer and to
the credit reporting agencies that you are a responsible consumer who uses
We recommend that you keep any balances on open revolving
credit to between 15-30% to help increase your credit score. Any balance above
30% is generally considered harmful to your credit score. The amounts owed make
up for 30% of your overall credit score.
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