Applying for it could help you build a great credit score.
- You must show that you can borrow responsibly to build credit.
- Proving that you can borrow requires someone to extend credit to you.
- A secured card may be one of your best options for borrowing if you don’t have a credit history.
To get a good credit score, you need to show that you can pay your debts on time. You must also demonstrate that you will not maximize the line of credit that has been extended to you. And you need to have a mix of different types of credit, as well as a long credit history if you want to get the highest credit score possible.
As you read about these factors that help you get a good credit score, you may notice that they all have one thing in common. You must be able to borrow to start building a long credit history; to show that you can make payments on time; to show that you have a good credit mix; and to show that you are not maxing out your accounts.
Unfortunately, this creates a difficult dilemma for those looking to build credit. You need a good credit score to be able to borrow, and you need to be able to borrow to get a good credit score. The good news is that there is actually a solution to this problem for those looking to build credit from scratch: You can apply for a specific type of credit card.
Could this credit card help you get a great credit score?
If you have no credit history and want to build a good credit score, you should seriously consider applying for a secured credit card. That’s because a secured card is available to almost anyone and can help you with several of the key factors that affect your credit history.
Many different card issuers offer secured credit cards. They are easily accessible because they work differently than standard credit cards or other types of loans. See, most credit cards and many other types of debt are unsecured. There is no collateral associated with them, and the lender only has your word to guarantee that they will be repaid. If you don’t pay as promised, it can be difficult and costly for creditors to try to recover the unpaid balance.
But with secured cards, you make a deposit into a special account and get a line of credit equal to the amount deposited. So, for example, if you were given a $500 line of credit with a secured card, you would have to make a $500 deposit with the card issuer in order to access that credit.
There is no risk to a lender with a secured card, so even if you have no credit history or recently filed for bankruptcy, lenders should generally approve you.
How does a secured card help you build credit?
A secured credit card is a great way to build credit from scratch because you can get approved without a good credit score and you can start making responsible lending decisions that will help your credit history develop in a positive way.
You see, most card issuers will report your payment history as well as your credit usage with a secured card. So if you keep your credit utilization ratio low and pay on time, it will show up on your credit report. Over time, the positive data being reported will open the doors to other types of loans and you may be able to get approved for cards and unsecured loans at affordable rates.
If you hope to borrow in the future but don’t have a credit history now, consider applying for a secured card as soon as possible so you can begin the process of building the kind of credit report that will open doors for you later in life.
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