How a secured credit card can help build your credit.
When starting to build credit history or improve your score, one of the more popular recommended tools is using a credit card. However, the reality is that not everyone is able to get approved for traditional credit cards due to poor credit, payment history, no credit history, debt ratio, etc. A secured credit card is an option that not many have heard of and one that could be used to build credit when options are limited.
A secured credit card differs from regular credit cards by requiring a deposit be paid in advance, typically ranging from $75-$500, depending on the lender, although in some cases the lender might waive the deposit. This deposit is used as a form of collateral for the lender and the deposit is only used if payments are defaulted on. Eventually, after a period of time demonstrating good payment history, the deposit would be refunded for credited to your account. Due to these requirements, approval rates are close to 100%, provided you don’t have any negative history with a prior card from the same company. There is still interest on the charges, and interest rates can vary depending on the lender used. If there is an annual fee, the rates can be a bit lower than if there are no annual fees charged.
Beyond those basics, the secured card is used just as any other card. They still require a regular monthly payment that is reported to either Equifax, TransUnion, or ideally both, can be used for online purchases or any store that takes credit cards. To boost your credit score, besides paying on time, which accounts for 35% of your overall credit score, it is important to watch credit utilization. Credit utilization is the percentage owed compared to the available credit limit and it represents 30% of your overall credit score. Therefore, if you start out with a card offering a limit of $500, you should not owe anymore than $150.00 on that card at any given time. A credit utilization rate of 30% or less is ideal to boost your credit score.
Because they require a deposit, some may confuse them with pre-paid credit cards. Prepaid cards are different in the sense that the amount you purchase the card for, is the amount you have available. The amount you spend is taken from the balance available. You do not need to make payments, and its activity is not reported to either credit agency. A prepaid credit card will not help you build credit.
If a secured credit card sounds like something that might be helpful for your financial situation, below are some of the more popular options that people have had success with:
• Capital One Guaranteed Secured Mastercard
- Annual fee of $59
- Min deposit of $75
- Interest rates range from 19.80%-21.90%
• Neo Secured Credit Card
- No annual fee.
- Min deposit $50
- Interest Rates range from 19.99%-26.99%
• Home Trust Secured Visa (option 1)
- No annual fee
- Min deposit of $500
- Interest rate – 19.99%
• Home Trust Secured Visa (option 2)
- Annual fee of $59
- Min deposit of $500
- Interest rates range from 14.90%-19.80%
• Plastk Secured Rewards Card
- Annual fee of $120
- Min deposit of $300
- Interest rates range from 17.99%-21.99%
If you have debt that is holding you back from taking advantage of credit building tools like a secured credit card, it might be time to consider all your options to move forward financially and gain a fresh start.
If you are looking for advice, or a second opinion about your debt, it does not cost anything to talk about your options. Every financial situation is unique and viable options can differ from person to person. A conversation free of judgment and cost, is the first step to determine options for debt that make sense for you. For a free consultation, please call or text (506) 645-1814 or email jaime@tackledebt.ca; or visit www.tackledebt.ca.