Secured credit cards can be great tools for rebuilding your credit history, provided the lender reports the secured credit card account to the credit reporting companies.
Unlike a traditional credit card, a secured card is linked to a savings account. The credit limit for the secured card is usually a percentage of the savings account balance. The savings account ensures that the lender can recover any unpaid balance if you fail to pay back what you charge on the account, so the lender is “secured.” Because of this, a secured card can be easier to qualify for than a traditional credit card account.
Using your secured card to make small purchases and paying off the balance in full each month will demonstrate how well you can manage credit and help you build good credit scores. If you make all the payments on time, the lender may eventually convert the secured card into a traditional unsecured credit card account.
Some lenders do not report secured accounts to Experian or other credit reporting agencies, so you should ask if they do before opening the account. If they do not report secured accounts, ask if they will report the account after it is converted to a standard credit card account.
Even if the account is not reported right away, managing the secured account for a time can be worth the effort if it will later be converted to a traditional credit card account that will be reported to Experian.
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Scoped on: 8/10/2017