💳Let's Talk About Secured Credit Cards💳

Secured credits were an instrumental part in my credit repair journey and in today's episode I talk more about how they can help you improve your credit as well.  Having bad credit is nothing to be ashamed of.  Your credit does not define you but if you want to improve your credit then you need to start putting in the work.

Here are some links to videos from my YouTube channel where I talk more about secured credit cards:

DiscoverIT Secured Credit Card

Bank of America Secured Credit Card

3 Reasons Why You Need A Secured Credit Card


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Website: https://www.bellascreditcorner.com

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Transcript

Bella:
Welcome to the How to Stop Being Broke Podcast, where the mission is to change your mindset about how you manage your finances so you can build a financial future that you can be proud of. My name is Bella Jones, and I am your host. So relax, sit back, and let's jump into today's conversation.

Bella:
Hey, hey, hey. We are back for another episode, and in today's episode, I want to talk about secured credit cards. Now, secured credit cards were instrumental in my credit repair journey, so I love to talk about them because they can absolutely help you if you are someone who needs to establish credit or if you need to improve your credit. Let's first talk about what is a secured credit card.

Bella:
A secured credit card does work like a traditional credit card, but in order to get the card issued to you by the bank, you have to pay a security deposit. Now, the security deposit is essentially going to be held by the bank in the event that you default on paying back the debt. This is why security deposits are required because, based on your credit worthiness, the lender feels that you need to actually send one in. When you send the security deposit in, most of the time, the amount of your deposit is in fact going to be the amount of your credit limit of that secured card. For example, if you send in a $500 security deposit, the credit limit of your secured credit card is going to be $500.

Bella:
Now, outside of that, the credit card is going to work like any other credit card, you can use it to make purchases. Every month you will be sent a bill, and if there is a balance on that, you will need to pay it back. If you don't pay it back within the timeframe that is mentioned on the bill, you will incur interest on those balances. It will be reported to all three of the credit bureaus, like a regular credit card. On the credit report, there isn't a way for anyone else to know that the card is secured, only you and the bank are going to know that. Also, when you receive the credit card, it is not going to say secured anywhere on it so you don't have to worry about anyone "knowing" that it is a secured credit card in the event they see you swiping it.

Bella:
Now, when it comes to which bank you go with to get a credit card, that is a different conversation. For example, if you do decide to go with a bank like Credit One, for example, it is pretty much known in the industry that Credit One is for people who have low credit scores or are in the process of establishing credit, but I really wouldn't get too caught up in that. Secured credit cards, again, are just a great way to start working on rebuilding your credit if you have had credit challenges in the past, or if you are new to credit and need to start establishing credit.

Bella:
Let's talk about how secured credit cards actually help you in your credit journey. Now, when it comes to your FICO score, 65% of your score is based upon our payment history and utilization, meaning how much of your credit you are actually using. By opening a secured credit card, you are essentially giving yourself a fresh start to establish your credit worthiness. Once you do decide to go this route, you really want to focus on these two components because they are going to help boost your credit scores. You want to make sure that you are making every single payment on time when you do decide to open this secured credit card. Making on-time payments is going to be crucial and critical in helping you, again, show your credit worthiness. You may need to put this bill on automatic payment so that way you don't forget, or if you're not in a position where you feel comfortable in doing that, please make sure that the due date of this particular bill coincides with your pay period, so that way you can more than likely have the funds to make that payment.

Bella:
Now, if you are unable to pay that balance in full, make sure that you can at least make that minimum payment, which is usually going to be at least $25, and depending upon the balance you have, it may be of course more than that, but you always want to shoot for being able to pay that minimum payment because you don't want to start negatively impacting your credit while you're trying to work on your credit. Definitely very, very important.

Bella:
Now, utilization. Now, utilization is one of those things that it is fluid. If you were to max out your credit card one month and pay off the balance the next month and that payoff shows on your credit report, that's going to increase your credit score. You can actually cause your scores to go up and down any given month just because of your utilization. The sweet spot when it comes to utilization is about 30%. You do not want to be using any more than 30% of your credit limit. That means if your credit limit is, let's say a thousand dollars, you do not want to use more than 300 of that thousand-dollar credit limit. Once you go above that 50% utilization, that's when you are really going to see your scores take a hit. But again, if you do pay that balance down the next month, your scores will definitely rebound. But ultimately, you really want to focus on keeping that utilization below 30% every month and that's really going to help your scores improve.

Bella:
When I started on my own credit repair journey, I did not know what secured credit cards were, I had no idea they even existed, but once I did learn about them, I knew they were something that I had to get into because I really wanted to start working on my credit. I started out with two secured credit cards. I had the Bank of America secured credit card and then I also had the Capital One secure credit card. Now, looking back, I did not know about the Discover secured credit card, because if I did, I would have obviously went with that. I'll talk more about that later on in this episode. But for me, I started out with two secured credit cards.

Bella:
Now, with secured credit cards, if you can be responsible with those cards, the bank will essentially, at some point, send your security deposit back to you, making those cards unsecured. Then what happens after that really depends upon where you are in your journey. I'm going to share my story, for example. With Bank of America, I had a $400 credit limit on this secured credit card. Once it became unsecured, I just kept using it as I was doing before and I had no idea that I could upgrade this card to something else.

Bella:
While I was working on my credit, I was subscribed to My FICO, which is a credit report monitoring service, so I had access to all three of my credit reports every single month. They gave me updates daily on any changes that were happening. For me, it was great because I needed to micromanage my credit because I did not want to have any surprises because I knew what had happened to me previously and I didn't want to have that happen again. If you don't know the story, definitely check out episode one or two, where I give some insight on that, but I will dedicate an entire episode to my journey, just we're not there yet. Okay?

Bella:
I was using My FICO to monitor my credit and there were these forums where people were sharing all kinds of knowledge and information about credit, their credit card rewards, and all kinds of things that I just had no clue about. While reading this forum, I realized that I could upgrade my credit card to something else. Now, of course, by the time I was ready to do that, my scores were in a much better place. My scores were like in the high sixes, low sevens, I had great income. I knew I was a good candidate for the upgrade. Once I realized it was an option, I went ahead and applied.

Bella:
Now, my original application was denied. I forget what the reason was now, but I did hear from the forum that if they do deny your request to just try again. On my second request, my application was approved. They upgraded my credit card to a cash rewards credit card with a $6,000 limit. For me, that was the moment where I said, "Wow, my hard work is definitely paying off." I went from this $400 credit card that wasn't doing anything for me, I wasn't earning points, I wasn't earning cash back, I was just using it to build my credit. Because I stayed the course, I stayed dedicated, I was able to now have this amazing credit card where I was earning anywhere from one to 3% cash back on purchases.

Bella:
Now, my journey with Capital One was slightly different. Again, I did have a secured credit card. I kind of forget the limit. I think it might've been $300, don't quote me on that. With that one in particular, I'd used it like I did the Bank of America secured credit card. I had it and I used it responsibly. Again, after a while, they sent my security deposit back to me. The only issue is that Capital One, at that time, they were not allowing people to upgrade that card to something else. I essentially had that card, I could not do anything with it, but I was able to apply for other credit cards with Capital One. I realized that because that card was not serving me any purpose and I had so many other cards that were helping improve my scores, I ended up closing that particular credit card.

Bella:
Now, when it comes to closing credit cards, you really want to be careful with that because closing an account can negatively impact your scores. There are some things you want to consider before doing that. I will dedicate an episode to that down the road, don't want to go too much into that this episode. I don't want it to be too, too long. But for me, the Capital One secure credit card was a great way to help me improve my scores, but once it essentially served its purpose and I was able to move on to bigger and better cards, I did end up closing that account because it just wasn't serving me any purpose.

Bella:
Let's talk about who is a good candidate for a secured credit card, because I think this is something that I don't think I've necessarily talked about in detail on my other platforms. If you are someone that is very new to credit, you do not have any credit, you would be a good candidate because now you can use this account, or these accounts if you get more than one, to establish your credit worthiness. You're going to start with this account, making on-time payments, keeping your utilization low, and as the time goes on, you're going to start to build your credit history and you're going to start building up those scores. Now, it's not going to happen overnight, it is going to take time, but using secured credit cards to establish credit is definitely a great way to get started.

Bella:
Now, if you are someone that has low credit scores, either because you have a thin credit profile, meaning you have three or less active trade lines, or if you have low credit scores because you have made some financial mistakes in the past, you would also be a great candidate for a secured credit card. Now, when it comes to applying for secured credit cards, ideally, my recommendation, you should really have your scores at least at a 550 before applying. Anything below that it might be difficult to be approved. Now, I'm not saying that you can't apply, but just know that you might be in a pretty tough spot in order to be approved. If you are below 500, yeah, definitely do not apply. Keep that in mind before deciding on applying for a secure credit card. Now, again, you are going to have to send in a security deposit, so you of course want to start saving up money so you can have that deposit ready to go to send into the bank once you in fact apply.

Bella:
Let's talk about a few options that are on the market. Discover, I kind of touched upon it a little while ago in this episode, Discover has an amazing secured credit card. It is called the Discover It secured credit card. It has no annual fee and you can actually earn cash back while using your secured credit card. At the time that I am recording this episode, you can earn 2% cash back when you use this card to purchase gas or groceries and you would then earn 1% on all other purchases.

Bella:
They're also offering a sign-on bonus, which is totally unheard of. That bonus is that money or cash back that you earn in the first 12 months of having this card, Discover will match that cash back. If you were to earn, let's say, $200 in cash back in your first year of having this card, at the end of that first year, Discover will give you an additional $200. Now, I don't want to go into too much more detail, but if you do want to learn more about this particular card, I will put a link to a YouTube video that I have done previously and the show notes below so you can definitely check that out.

Bella:
Here are some other banks that offer secured credit cards, such as Bank of America, Capital One and Citibank. Now, with all three of these products they do not actually charge an annual fee, but they are pretty much no-frill secured credit card. You aren't going to earn any cash back or any rewards, but while they are great ways and getting your foot in the door and building a relationship with these banks so in the future, as you start to improve your scores and have an amazing credit profile, you will then be in a great position to apply for other products with these particular banks, whether it is to get some of their better credit cards or to get a automobile loan, home loan, et cetera. It's a great way to get your foot in the door.

Bella:
Now, keep in mind, there are many other secured credit card products on the market, but those do tend to charge an annual fee. For me, an annual fee only makes sense if there is some kind of perk or benefit. For example, with other credit cards that are not secured, but other credit cards on the market that charge an annual fee, they have amazing perks and benefits and rewards so it kind of makes sense to pay an annual fee. Paying an annual fee for a secured credit card when there are others on the market that don't charge an annual fee, for me, I would not go that route.

Bella:
I don't want to call out any banks in this episode, but if you do your Googles and you see secured credit cards but they are charging an annual fee, I recommend just stay away from those. Try to stick with the banks that do not charge an annual fee, because again, if you're trying to work on your credit, you're trying to improve your credit worthiness, paying an annual fee to do that just is counterproductive. But again, do your research. If you decide to go that route, nothing wrong with it, but I personally would not recommend that.

Bella:
I hope you learned something new in today's episode. Of course, I will put some links to YouTube videos that I've done before about some of the secured credit cards that I've mentioned in today's episode, because I do recommend using secured credit card if you do need to work on improving your scores. I do want to thank you for stopping by and listening to today's episode, and I will talk to you soon.

Bella:
Thank you for listening to another episode of the How to Stop Being Broke Podcast. Now, if you enjoyed today's episode and look forward to future conversations like the one we had today, make sure to subscribe, because it is time for you to stop being broke and create a financial future you can be proud of.