Not sure if you need a secured credit card? Even if you don’t intend to use a credit card for day-to-day spending, a secured credit card, which requires you to deposit money as collateral, can be the first step to building the credit history you need to make your financial goals a reality. Here are three indications that you might benefit if you apply for a secured credit card.

1. You’ve Been Denied Credit or Loans in the Past

There are many reasons you may have been denied credit in the past, but credit history does play a role in the approval process for most loan products. Secured credit cards can act as the proverbial first stepping stone to eventually being approved for an unsecured credit card and establishing a solid credit history. Because they require you to deposit your own money to secure the credit line, credit issuers bear less risk that you’ll default on the account.

Applying for secured credit card can be a good first step to establishing the credit history you need to move beyond to an unsecured credit card.

2. You’ve had Some Negative Credit Events

Past bankruptcy, foreclosure, missed payments on accounts or failure to make payments altogether may remain on your credit report for up to seven to ten years, and will likely have a negative impact on your credit score. However, when using a secured credit card responsibly by paying all your bills on time every month and keeping low credit card balances, you may eventually begin to establish a stronger credit history. 

3. You’ve Never Had a Credit Card Because You Are Afraid You’ll Spend Irresponsibly

Credit cards are financial tools that you can use to your advantage to establish a credit history. Responsible credit use means charging no more than what you can afford to pay for in full, and paying your bills on time each month. You do not have to spend a certain amount on a credit card to build credit, nor do you have to incur interest charges. But, because credit cards are often required to make online purchases or book a hotel room, flight reservation or rental car, it can be very helpful to have one. A secured credit card can help you do all of that and build a credit history that allows you to manage your financial life as you see fit — even if you only use the card to make small purchases on occasion (and pay for them in full by the monthly due date).

Because secured credit card issuers vary in their account terms and conditions, it’s a good idea to ask whether the issuer reports to the major national credit bureaus (if they do, and you pay responsibly, it can help you build your credit). You can also look into whether the issuer will check your account periodically to see if it can be graduated to an unsecured credit card.

How you use choose to use credit in your life is entirely up to you — taking the step to apply for a secured credit card is a great start, and there is no need to spend more than you feel comfortable charging in order to build credit.

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