*Collaborative Post.
Having a good credit score will open so many doors for you; it makes it so much easier to get approved for credit cards, loans and mortgages. If you have a poor credit score, you may actually be refused these things making it quite tough to do the things you want to do like buy a house or get a loan out! It can also affect you getting mobile phone pay monthly plans, and anything you’d like to buy on finance.
More often than not, if you have a low credit score and you do get approved for a credit card, loan or mortgage, you will be paying higher interest rates than those that have a good credit score.
There are many ways to improve your credit score, such as paying your accounts on time and in full each month if you have any outstanding loans, make sure you’re registered on the electoral roll (this helps with proving your address), and if you can keep old accounts open it shows a long credit history. You can also get a secured card.
What is a secured card?
A secured card is when, to open an account, money must be deposited with the credit card issuer. This is a lot like when you pay a security deposit to a landlord when you first begin to rent a property. The deposit is there for if you ever default on a payment on the card, the issuer has some collateral. If you make payments when required, then some issuers will offer your deposit back to you.
It’s often a lot easier to get approved for a secured card than it is an unsecured one.
Who is a secured card for?
If you are someone that is trying to establish, build or rebuild their credit score then a secured card would be for you. As mentioned, getting yourself a secured card is often easier then an unsecured one if you have a low credit score, so if you have been refused cards previously then you should give a secured card a go.
Paying the security deposit shifts the credit risk away from the credit card issuer so they are far happier to let low credit scores have a card!
How a secured card can help you build credit.
As you make your payments, they are reported to the credit agencies along the way showing that you can keep on top of your finances.
By having a deposit on the card, it means that if you miss a payment the deposit will be used to cover it which helps towards you not defaulting on a payment. This will only work, of course, if the payment is the same or less than the payment you need to make. If you don’t have enough on your secured card the late payments still will hurt your credit score.
Secured card versus prepaid card.
The simplest way to look as the difference is
Secured: Buy now, pay later
Prepaid: Pay now, buy later
A prepaid card is where you can only spend the money you have deposited onto your card so it essentially functions more like a debit card. Using a prepaid card will not improve your credit scores as the issuer does not send your account history to the credit bureaus to be included in your credit report as a secured card does.
In short, if you’re looking to build credit, get a secured card.
I'm Squibb Vicious, better known as Haydy!
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