iQuanti: People without a credit history often have a dilemma when starting to build their credit: credit cards help build credit, but you need credit to be approved for a credit card.
That's where secured credit cards come in.
These cards require you to put down cash as a security deposit. Then, you can use your card just like any other credit card, making charges and even earning rewards, depending on the card you choose.
Secured cards are excellent credit builders for several reasons:
1. Easy to Qualify For
Since secured credit cards require a cash deposit, the lender is protected in case the borrower can't pay. The lender would be able to take the deposit for themselves in that instance.
Thus, lenders are pretty lenient on approvals for secured cards. Most people can easily qualify with little to no credit score or history.
2. Rarely Have Fees or Interest Compared to Credit-Builder Loans
Credit-builder loans can be good tools to work on your credit, but you have to pay interest on them. You may also owe origination fees, prepayment penalties, and other charges.
On the other hand, as long as you choose a card with no annual fee and pay off your full statement balance on your secured credit card each month, you can start building your credit history without paying interest or fees.
3. Offer Rewards for Purchases You Already Make
Some secured credit cards offer rewards for your purchases. In general, you can redeem your accumulated points every statement period for cash, statement credits, or even shopping.
One great way to take advantage of this is to avoid unnecessary purchases and continue with your normal shopping habits. You'll end up saving a few bucks every statement period on purchases you would've made anyway while avoiding interest.
4. May Let You Convert to an Unsecured Card
As you maintain a perfect payment history and your credit improves, your lender may eventually let you convert to an unsecured card and even get a higher credit limit.
By doing so, you can get your deposit back and avoid the hard inquiry involved in applying for a separate unsecured card.
Even if your card company doesn't allow this, you can leverage your improving credit stats to apply for an unsecured card in the future.
Build or Rebuild Your Score with a Secure Credit Card
Whether you're just starting in the world of credit or need to recover from credit damage, secured credit cards can be an excellent choice.
They're easy to get approved for compared to an unsecured credit card and may offer cashback rewards while allowing you to avoid interest and fees you'd otherwise pay on credit-builder loans.
If you keep up the responsible card usage, and you'll soon be able to qualify for the credit cards and loans that require an excellent credit score.
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Original Source: Why Secured Credit Cards Are One of the Best Ways to Build Credit
