If you’ve just ordered a secure credit card or you’re thinking about getting one, you’re probably excited about the purchases you’re going to be able to make with it. But before you get too carried away, it’s important that you familiarize yourself with how you should use these cards to get the most out of them.
Secure credit cards are great if you have have little, no or poor credit as they can help you build up a positive credit rating. This in turn helps in the future when you are seeking to finance a car, a house or an apartment. To gain access to a secure credit card you are required to place money in a security deposit account. These secure cards then use this amount as collateral, helping you to boost your credit so you can enjoy better purchases, getting yourself on the path to financial success.
Here are some of the ways you can get the most out of secured cards:
Use for Small Purchases
A secured card works by helping you to show creditors that you’re able to manage your money and pay monthly bills. In order to demonstrate this in the best light, you’ll need to make small purchases each month that you then pay off in full. Not only will you avoid paying interest by not carrying a balance but you’ll also be using a tried-and-tested strategy for building up a good credit score. Your ability to pay your bills on time will account for 35% of your credit score.
Pay Your Bills On Time and Don’t Just Pay the Minimum
Retaining a healthy credit score relies on you paying the minimum amount on your bill each month but if you can up these payments, it’ll add to the benefits of these types of cards. Not only will it remove any worry you may have about maxing out your credit card (which also shows creditors that you’re not able to manage money properly) but it’ll also reduce your credit utilization ratio. This is the how much you owe compared to the limit on your credit card. Both of these factors play a huge role in your overall credit score.
Make More than One Monthly Payment
You can keep your balance really low by making more than one payment a month. This is quite important because even though you might be paying off your bill in full each month, you never know when your card issuer is going to send their report to the three credit agencies (Experian, Equifax and the TransUnion). Having a large balance will reduce your overall credit and this can have a negative impact on your credit score. It’s also a good idea to consider making a payment on your card after you’ve made a particularly large purchase as this will help to increase your credit.
Be Alert About Payments
No matter how organized you are, it’s only natural that you might miss a payment every once in a while. However, even just one missed payment can be too much, especially when you’re trying to build up your credit rating.
To avoid this, create payment alerts that will remind you of your bill’s due date when it’s coming up. Sometimes, your card issuer may allow you to set this alert up, sending you a text when it’s due. Or, you could put together your own alarm in your calendar which serves a reminder once the date arrives. Try to set this about a week before your bill is due just in case you’re too busy on the day that you need to make the payment.
Opt for Auto-Pay Systems
If you’re still a bit concerned that you’re going to miss payments, e.g. you travel a lot or you’re really bad at organizing yourself, then why not opt for auto-pay? This may be the easiest solution for you as it allows your credit card issuer to take the payment automatically from your bank account so you don’t constantly have to monitor your bills and payments. Make sure you’ll always have enough money in your bank account to do this and be aware of any large purchases you may have made too.
Remember, it’s not the end of the world if you have a low credit score because by being diligent, you’ll be able to provide yourself with more options by increasing your credit rating. This will give you access to more loans and credit cards which can help you to build your future by buying your own house or owning your first car. Keeping track of your bills and making sure they’re paid on time is simple when you get into a routine and by doing this, it’ll mean you’ll never have a low credit rating again.
Zoe Crooksen writes about personal finance topics, contributing to a range of finance and lifestyle blogs whether she’s sharing ways to get out of debt, save more money or enjoy retirement.