What is a Secured Credit Card? How Can it Help My Credit Score? – Episode #21
What is a Secured Credit Card and how is the different from an Unsecured Credit Card? Let’s talk about the definition first. When something is secured, you are applying collateral to something. When, you buy a home, you are using your house as collateral, so the loan is secured from this. You don’t pay your loan payments, they can foreclose and take your house. Most credit cards don’t have collateral, and therefore are unsecured. However, there is such a thing as secured credit cards, and you will typically put up a small amount of cash, say $200 or $500 for a $500 limit secured card.
So why do these secured credit cards exist? Well, some people with no credit history, like first time credit builders, seem risky to give an unsecured credit card to. Instead, the bank will offer a secured card and then by using that for a few months and developing credit history, you can then apply for an unsecured card [usually from the same bank]. This strategy also works for people who need to rebuild their credit history.
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I’m trying to build my credit; so is a secure credit card right? How much will a secure credit card really help my score?
A secure card can really help “no credit score” people the most as it helps give the credit scoring engines something to score. I can’t place a number of how many points it will give your credit score, but I can tell you it’s a smart, responsible way to build credit and learn how to use credit cards.
How many points I get on my credit when i first open a secured credit card?
Julius, i wish i could give you an exact answer. For many people, they go from having a no hit or no score to having their first credit score. The scoring model delivers a no hit/no score when it has no data to score.