Have you ever heard of a secured credit card?  If not, I will explain what it is and why you might want to get one.  So first, you might want to get one to establish credit.  This could be for someone who has never had any credit before.  Another reason could be for someone who has terrible credit and needs to rebuild it.

So how does it work?  You get what’s called a secured credit card and add money to that card.  With a normal credit card, they pay the bill and then you owe the credit card company.  But with a secured card, you can “charge” up to the amount you added to the card.  So, for example, you initially add $500 to the card.  Your “limit” would be $500.  You can use the card just as you would a regular card to make purchases, use it for bills, etc.  At the end of each month, you can make a “payment” that would bring your card balance back up to $500.

As you restore the card’s balance, the “payment” activity is sent to each of the three credit bureaus.  On time payments help you establish or rebuild a good credit history, thus improving your credit score.  If you ever decide to close the card or get to a point where you can change to a regular (a.k.a. unsecured) card, your deposit will be returned.

Secured cards are much easier to get over an unsecured card because your providing collateral.  They will help you build or fix existing credit scores.  And, some banks will offer a way to obtain an unsecured card after a period of prompt payments.

Moral of the story:

If you’ve never had credit before, or your credit sucks, consider a secured credit card to establish or improve your credit.  Three things to be aware of to make this happen.  First, always repay your card on time.  If you miss payments, they will reduce your credit scores.  Second, keep your expenditures under 30% of your limit.  It’s easier to repay that way and will help your credit scores.  Make sure the secured credit card you select reports to all three of the credit bureaus.  There is always a way to improve your scores or establish good credit.  This is one of them.