Secured cards work by allowing cardholders to deposit cash in their credit card account. The lender of the card then gives the cardholder a credit limit equal to the amount of money they deposited in the account. For example if you deposit $500 in your account you get a credit card limit of $500. Secured cards are usually offered to people with bad or no credit because the cash deposit reduces the risk to the credit card issuer.  So if the card holder can’t pay the credit card off then the lender can take the money from their deposit. The best secured credit cards should not have a fee.

Here are a few more things that you must know about secured credit cards are:

  • You eventually get your deposit back if you always pay your bill on time.
  • Using your secured credit card responsibly can improve your credit enough to qualify for an unsecured card or various other credit cards that don’t need a deposit.

How secured credit cards work?

Secured credit cards work similar to the traditional and unsecured credit cards. Once you purchase anything through card: you receive a card statement and then clear debts within the due date. The one thing that you need to know before using the secured credit card is that you cannot use your cash deposit to make your credit card payments. The security deposit serves as an asset that reduces the financial risk to the lender because they have the option to recover delinquent payments from the funds in the cardholder’s security deposit which is held in a special type of savings account.

  • You can use them at any place wherever credit cards are accepted.
  • Using your card responsibly can build or rebuild your credit score. Secured Credit Cards are one of the best options to establish a credit history or repair a bad credit history.
  • Building credit history and having good credit is important in getting a good job and taking control of your personal finances

How to use a secured card effectively?

Although you need a cash deposit to get secured credit card these are best for rebuilding your credit score. Here’s how you can use your secured credit card effectively.

  • Use your card responsibly. Moreover, make sure to use your card for one or two small purchases every month.
  • Pay out completely every month before the due date. The chances of getting charged with any interest reduces to zero when you pay fully. Interest rates on secured cards are generally higher than those on unsecured cards.
  • Keep an eye on your credit score over time. Ask your issues to upgrade your card to unsecured card when your credit score improves meaningfully.

Many people find that by using a secured card carefully, it takes only about a year to improve their credit score enough that they’re able to qualify for an unsecured card.