Building or repairing credit can seem like a big task, but secured credit cards can offer a practical solution. Whether starting from scratch or recovering from past financial missteps, understanding how secured credit cards work and how to use them responsibly can set you on the path to a better credit score.

How Secured Credit Cards Work

A secured credit card requires a cash security deposit, typically equal to the credit limit of the card you’re offered. The credit card issuer holds the deposit as collateral to cover any unpaid balances. When you upgrade to a regular credit card or close the account in good standing, you get the deposit back.

Secured Credit Card Benefits

1. Easier Approval Process

   Personal secured credit cards are generally easier to obtain than traditional credit cards. Since they require a cash deposit as collateral, lenders are more willing to approve applicants with limited or less-than-stellar credit histories. This makes a secured credit card an accessible option for those looking to build their credit profile.

2. Credit Building Opportunities

   Once a borrower gets a secured credit card, responsible use of their credit line, timely payments, and low balances can establish a track record of creditworthiness. Over time, this positive credit behavior can lead to an improved credit score.

3. Transition to Unsecured Credit

   Once a customer has established a history of responsible credit use, they may improve their standing and credit score enough to gain the opportunity to transition to unsecured credit. The transition could mark a significant milestone or come with more credit opportunities, higher credit limits and more favorable terms.

Benefits for Small Business Owners

Entrepreneurs who may be using personal finances and credit cards for business expenses will eventually need to obtain credit in the business name to grow. This can include business credit cards, lines of credit or loans. But for those who are just starting, a personal secured credit card might be the first step in a long business journey.

Once entrepreneurs have established good personal credit, they can use this as a springboard to apply for business credit cards or loans. Many business credit card issuers consider the owner’s personal credit score when evaluating applications, especially for new or small businesses. A strong personal credit score can increase the chances of approval and potentially lead to better terms.

Conclusion

Personal secured credit cards offer individuals a practical way to build or rebuild their personal credit. By providing easier access to credit and promoting responsible financial habits, secured cards can offer a valuable entry point for people who need to build a better credit profile.

If you’re interested in a secured credit card, Cadence Bank offers a Secured Mastercard^®. Our Secured Credit Card provides you the opportunity to help build or rebuild your credit with no annual fee. Find a branch or visit CadenceBank.com/SecuredCreditCard.

Sources:

https://www.cnbc.com/select/how-secured-cards-work/

https://www.sba.gov/business-guide/plan-your-business/establish-business-credit

https://www.forbes.com/advisor/credit-cards/what-is-a-secured-credit-card/

https://www.forbes.com/advisor/credit-cards/business-credit-card-benefits/

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.