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What is a secured credit card, and how does it help build credit?

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A secured credit card is a card that's backed by a deposit.  NUI:PHOTOGRAPHER / Getty Images

Not all credit cards are created equal. Some allow you to earn cash, airline miles and other perks, while others help you build - or rebuild - your credit.

That's the case with secured credit cards, at least.

If you have bad credit score or no credit history at all, a secured credit card can be a good way to create a positive payment history and build up your credit score. An online marketplace can also help guide you on ways to repair your credit. Sign up now for a free credit evaluation.

What is a secured credit card?

A secured credit card is a card that's backed by a deposit. You give the credit card issuer an initial security deposit - which often ranges between $50 and $300 - and you get a credit line equal to that amount. (If you put down a deposit of $150, for example, your card would have a spending limit of $150). 

You can then use the credit card for purchases like you would any other card and pay it off each month with your issuer. They then report those payments to the three main credit bureaus - Experian, Equifax and TransUnion, which helps you build credit and increase your credit score.

If you're not sure what your current credit score is, don't worry: There are several ways to easily check your score (and overall credit health) via online tools. And if your credit history is sub-par? There are tools to fix that, too

Most secured credit card deposits are refundable, so you'll get your money back when you close the account or establish a strong history of on-time payments. Some secured cards also have a graduation component, which allows you to move from a secured card to a traditional credit card after a certain period of time - typically after several months (or longer).

How to get a secured credit card

To get a secured credit card, you'll need to fill out an application with the credit card company. Most major banks and card issuers offer secured cards. You can compare and contrast issuers and card offers via an online marketplace to get an idea of which works best for you. If you're concerned about your current credit standing, consider seeking some professional advice. There are firms that can help you repair your credit, improve your credit score and prepare for a successful financial future.

Since secured cards are designed to help you build up your credit, most card companies don't require a minimum credit score to qualify. Approval is never guaranteed, though, and you will need to provide some personal information such as your Social Security number, address, and bank account details when applying. You also must be at least 18 years old. 

How do I get the most out of my secured credit card?

To get the most from your secured credit card, it's critical that you pay your balance off each month and by your assigned due date. Since your card issuer reports your payments to credit bureaus, failing to pay (or paying late) could tarnish your credit history and reduce your credit score. 

If you make your payments on time consistently, you can generally expect to establish a solid credit score in about six months, according to Experian. Most secured cards include a credit score monitoring feature that allows you to track your score over time. If your card doesn't have this feature, you should be able to get credit score monitoring through your bank, or you can purchase your score from Equifax, TransUnion or Experian at any time. 

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