How do secured credit cards work?

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 credit wisely.

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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