Secured credit cards are valuable tools if you’re looking to build or rebuild your credit. Pay your statement in full, and over time you may eventually move on to a reward credit card or better interest rates on a mortgage or car loan. But how do you keep that good credit once you build it? The secret is developing responsible money habits:
1. Read the fine print.
Learning to read the fine print as you research options for secured credit cards is a financial skill that will benefit you throughout your life, says Katie Ross of the financial education nonprofit American Consumer Credit Counseling. She explains that when you really understand the meaning behind the important terms that impact your credit and finances, like annual fees, late fees, interest rates, payment cycles and grace periods, you’re better equipped to evaluate pre-approved credit offers that you may begin to receive after demonstrating responsible use of your secured credit card. 1
2. Charge only what you can buy in cash.
Secured cards work by depositing funds as a security deposit, and that deposited value becomes the credit limit for the credit card. To build the discipline needed to avoid interest rate charges, use your secured credit card to charge a small amount each month on purchases, and then pay the statement balance in full by the payment due date each month. This habit develops purchase and bill payment discipline and could help you avoid using too much available credit â€” which could help your credit score. 2
With practice, you’ll become more familiar with how to allocate the funds from your checking or savings account to ensure paying on time. Additionally, after you read and confirm your credit card statements when they arrive, you can establish a system for paying your bills by mail, online or with automatic bill payment.
3. Figure out the right money management system for you.
The money management system that truly works is the one that works best for you. Use your secured credit card to explore what tools make you to feel in control of your finances. For example, paperless statements may reduce the amount of clutter in your mailbox, but you may prefer paper statements. Experiment with the money management apps, different budgeting strategies, and spending tools that make you feel most in control of your finances.
4. Build emergency savings.
You deposited money with your secured credit card issuer to secure your credit line. You may get these funds back as you move into an unsecured credit card. Consider finding a fee-free interest-bearing deposit account (which may be a traditional savings, online savings account, or a certificate of deposit) to deposit the funds into once you receive them back from the issuer, as well as establishing a system for making regular contributions to grow those funds further.
5. Be proactive about improving your financial weak spots.
Dr. Ramani Durvasula, licensed psychologist and co-host of the Oxygen series “My Shopping Addiction” says people form money attitudes early in life that impact how we manage money in adulthood. 1Â Children who grew up feeling financially vulnerable tend to misunderstand how to use money as a tool that empowers them pursue the kind of life they want to achieve. 1
Secured credit cards can help you better understand your finances and may even empower you through education, and action, to address any financial concerns before you move into the world of unsecured credit. Review your monthly secured credit card statements and terms and conditions agreements to ensure you understand the significance of the information. Pull your free credit report at least once a year (via annualcreditreport.com) and review the information it contains. 2Â Seek answers to any terminology or policies you don’t understand, so you can gain the confidence to control your financial destiny.