Credit cards that require deposits are known as secured credit cards, and consumers with poor credit histories can use them to improve their credit ratings, reports Bankrate. The deposit becomes collateral for the credit line that banks or credit unions may otherwise be reluctant to offer. Once consumers demonstrate their financial reliability and improve their credit score with good payment habits, financial institutions are willing to qualify them for unsecured credit.Continue Reading
Although a number of banks and credit unions offer secured credit cards, consumers should study fees, interest rates and add-on products before they apply, cautions Bankrate. Some financial institutions offer reasonable fees and good customer service, while others exploit the financial misfortune of their customers by demanding high interest and maintenance costs. Some institutions set credit limits at the amount of the deposit, but others offer credit that is a percentage above the deposit amount.
To rebuild credit using a secured credit card, consumers should limit their purchases so that they can pay the entire balance by the end of the month, advises U.S. News & World Report. If they are unable to pay the full amount, they should never miss monthly payments and always pay above the minimum amount. Additionally, they should work on paying off any other debts they have, as their credits scores are dependent on their overall financial responsibility.Learn more about Credit & Lending