Secured credit cards for better benefits

A secured credit card is backed by savings account used as collateral on the credit available with the card. Money is deposited and held in the account backing the card. The limit will be based on both your previous credit history and the amount deposited in the account. This type of credit card is used by people with little to no credit or a past history of bad credit. The major benefit that these cards provide is the ability to rebuild or establish a credit history which at some point may allow users to gain unsecured credit cards or other forms of credit finance.
                         

Don’t think that a secured credit card and a prepaid debit card are the same as both have different characteristics. Prepaid debit card, where the cash collateral is placed into an account and drawn down by using the card. On the contrary, when you open a secured credit card, you are granted a line of credit with a zero balance and a predetermined credit limit. You are charged interest on the balance to your account.

Financial institutions or lenders may be unwilling to accept the risk of providing an unsecured credit card to a customer, so they instead offer a line of credit that has been secured with cash collateral. Secured credit card payments and balances are reported to credit bureaus. In fact, the information reported on your secured credit card is treated the same as any other credit card.

Here are some rules; you need to follow to build your credit.

• Wisely use your card

Use your card prominently as by simply having a new credit limit does not help out your score much. Instead, buy a few things each month and make your payments. Manage your card responsibly and you may see an increased limit or even qualify for an unsecured card in the future.

• Repay your balances timely

Try to pay off your balance consistently every month to have favourable results on your credit report, and you may even be able to avoid interest charges altogether if you make the most of any grace periods.

• Avoid using your card to maximum limit

If you max out on your card, you will incur higher interest charges on higher balances, but you hurt your credit utilization rate by borrowing too high a percentage of your limit.
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Source: Secondary