iQuanti: Secured credit cards require you to put down cash as a security deposit and to establish your credit limit. They can be great first credit cards because they're often easy to qualify for and are fairly simple. At the same time, however, they can offer you plenty of benefits if you know your way around the card.
This article will offer tips on finding the best secured credit card for your needs, then show you how to use a secured credit card to build your credit.
Picking a Secured Credit Card
Here are a few tips for picking the best secured credit card for your needs:
Check Deposit Requirements
You want to find a card with a reasonable number based on your budget. Too high, and you can't meet the requirement without stretching your wallet too far.
Look at APR
Annual Percentage Rate, or APR, is an annualized interest rate applied to any balances you carry. You want to get the lowest APR possible in case you carry a balance. However, a slightly higher APR may be acceptable if you can avoid fees or get better rewards.
Evaluate Rewards
Some secured credit cards let you earn rewards points when you make purchases. Each statement period, you can redeem these points for a statement credit to reduce your balance or cash to put in your bank account.
Reward structures can vary. Some cards may offer more rewards on spending in certain categories or even have quarterly rotating categories with even higher rewards.
Avoid Annual Fees
Some secured cards charge annual fees. These are added to your balance once each year in the month you opened the card. It's best to avoid cards with these fees to save money. If anything, you can put the money you saved toward your deposit.
Maximizing Your Secured Credit Card
Try these tips to get the most out of your secured credit card:
Put Down as Much as You Can Afford
Even if your card has a low deposit requirement, you should put down as much as you can comfortably afford for a couple of reasons. First of all, your deposit is your credit limit. If you put down $50, you can only spend $50 before maxing out the card.
Additionally, a higher credit limit helps your credit utilization ratio — your total balance divided by your credit limit. Maintaining a low credit utilization ratio is a key part of building your credit score.
Make Each Payment on Time and In Full
Payment history — your track record of on-time payments — is the biggest credit score factor. Set a recurring reminder to pay your bill each month so you don't forget and miss a payment. If your card offers autopay, you might want to set that up.
That said, avoid making just the minimum payment. Yes, you'll avoid late fees and credit damage. However, you'll be charged interest, growing your balance and harming your credit utilization ratio.
Use Your Secured Card for Your Regular Expenses
Using your secured card for spending you'd do regardless — such as gas and groceries — is a great way to maximize the benefits and minimize your risk of getting stuck in debt.
For one, you won't be as tempted to keep swiping the card and spend unnecessarily. This also makes your monthly payments predictable because your spending won't change much month-to-month.
At the same time, you might be earning cashback rewards. So overall, you'll be earning great returns on your regular, day-to-day spending, as long as you pay off your full statement balance each month.
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Original Source: How to Get the Most Out of a Secured Credit Card
