How to Improve Your Credit in 2021 With a Secured Credit Card

NEW YORK - April 6, 2021 - (Newswire.com)

If you've had to incur debt or missed payments on credit cards or rent due to the pandemic, your credit score may have suffered. Even if you've just put your financial goals on hold for the last year, building your credit in 2021 will make it faster and easier for you to get your finances back on track.

One way you can work on raising your score is with a secured credit card. Secured credit cards can help individuals with fair or poor scores, or those with limited credit histories, build their credit.

Keep reading to find out how you can use a secured card to help your credit in 2021.

Why your credit score matters

Your credit score is a key piece of information that is used to assess how risky you are to loan money to. If you have a higher credit score, you're more likely to be approved for everything from an apartment rental lease, to a new credit card, to a mortgage.

Having a better credit score can allow you to qualify for higher amounts of extended credit on loans and credit cards, as well as lower interest rates.

In other words, a good credit score can help your debt cost you less over time. It can also give you more flexibility when pursuing future financial goals such as buying or renovating a home, buying a car, or even starting a business.

What's a secured credit card?

A secured credit card is similar to an unsecured card in that you have access to a line of credit. However, secured cards require you to put down a deposit as collateral. Your credit limit is usually the amount of money that you put down upfront. Secured cards are intended for individuals with lower or limited credit scores who may not qualify for unsecured cards.

Because you're putting up collateral, you're considered less risky to lenders. If you can't pay your balance, the lender can simply take your collateral instead. Plus, secured card activity is reported to the three major credit bureau (Experian, Equifax, TransUnion), meaning that responsible use will positively affect your credit score.

Will I receive my deposit back?

Assuming you use your secured card responsibly, you'll be able to eventually move up to an unsecured card. Once you do that, you'll receive your deposit back. 

Secured cards vs unsecured cards

A secured credit card is similar to an unsecured card in that it allows you to have access to a line of credit. They're issued by major credit card lenders and you'll receive a monthly statement with your spending activity. If you carry a balance month to month, you'll owe interest.

The major difference between unsecured and secured cards is that unsecured cards don't require a deposit for you to access credit. Secured cards require collateral up front.

How to use your secured card to build credit

Here are a few tips on how you can use your secured card to build credit:

• Pay in full: Only charge what you know you'll be able to pay by your bill's due date. Paying your bill in full will help you avoid paying interest and prevent you from amassing debt.
• Watch your credit utilization: Your credit utilization ratio is the amount of credit you have available versus the amount of credit you're using. The lower the ratio, the better. In general, it's best to have a credit utilization ratio of under 30%.
• Make on-time payments: On-time payments are the biggest factor in your credit score. By making your payments on-time, you'll see a hike in your score as it shows lenders that you can handle credit responsibly. Plus, you'll avoid paying late fees. Even one or two late or missed payments can cause your score to nosedive.

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Original Source: How to Improve Your Credit in 2021 With a Secured Credit Card