Secured Credit Cards – Just How Do They Work?

It doesn’t take much to run into debt problems… A car repair issue you didn’t plan on, a layoff you didn’t see coming, or skyrocketing interest rates you weren’t budgeted for can all send you spiraling into debt.
And once you’re in debt, it can be tough to get out.

Typically, one of the first things to go will be your unsecured credit card. After all, that “buy now, pay later” mentality that comes with an unsecured credit card may even be what got you into debt trouble in the first place!
If your credit score dips low enough, you may have no alternative but to turn to secured credit cards.

So, how do they work?

– Secured credit cards are like a prepaid debit card
Unlike an unsecured credit card, when you have secured credit, you have to deposit money onto the card before you can use it to buy anything. That way, you never have to worry about spending money that you don’t have.

Whenever your card is running low on funds, you just deposit more money onto it. As an added benefit, though, when you deal with secured credit cards, you can make your credit limit as high as you want!

And, just like a prepaid debit card, you can also use your secured credit card at ATM’s all over the world.

– Secured credit cards don’t have any monthly bills
Because you are fronting all of the money, you will never have a credit card bill to worry about – meaning that you will never have any interest to worry about! That way, all of your money is going directly to purchases, instead of getting a lot of it tied up with high interest rates.

– Secured credit cards come with some of the same perks as an unsecured credit card

Even if you’re forced into using secured credit, you can still take advantage of things like rewards credit cards and cash back credit cards. Luckily, the secured credit world has become competitive enough that issuers have started offering secured rewards credit cards!

– Secured credit cards won’t do anything to help rebuild your credit score

This is, by far, the biggest drawback of secured credit.

Because you are not responsible for paying any money back to your credit card company, it has nothing to report to the credit bureaus. And, if the credit bureaus aren’t hearing good things about you, there’s no reason for them to increase your credit score. If you need to rebuild your credit, you are going to have to find another way to do it.

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