Dubai: While a credit card is obviously the fastest way to get good credit, often you can’t get a credit card without a good credit history or for other reasons like a poor credit card. salary or employer of an unlisted company. This is where secured credit cards come to the rescue.

Secured credit cards work much like traditional credit cards. The main difference is that with a secured card, you pay a cash deposit up front to secure your line of credit.

The deposit is usually equal to your credit limit, so if you deposit Dh200, you will have a limit of Dh200. The deposit reduces the risk for the credit card issuer. If you don’t pay your bill, the issuer can withdraw the money from your deposit. That is why these cards are available for people with bad credit or no credit.

The most important thing to keep in mind is that the credit card company does not use this money (deposit) to pay for your purchases. When you buy things with the card, you have to pay for them when your statement arrives, just like you would with a regular credit card. The deposit is only there if you don’t pay your credit card bill.

A few secure cards may allow you to upgrade your account directly to an unsecured card. Others don’t have an upgrade process, so you’ll have to apply elsewhere and then close the secure card. When you upgrade or close a secure card, the issuer will refund your deposit.

If you don’t have a credit history, a secured credit card can be a first step in starting to create one. If your credit rating is low and it’s difficult to qualify for an unsecured credit card or other loan, a secured credit card can help you rebuild your credit.

If you have bad credit, simply relying on cash, prepaid cards, or debit cards to make your purchases will not do anything to your credit score as the activity is not reported to the credit bureaus. .

When handled properly, using a secured credit card to help build or replenish your credit can demonstrate to your credit card issuer and credit reporting agencies that you are a consumer. manager who used the credit wisely.

Whether or not you need a secured card depends on the quality of your credit. For unsecured cards that don’t require a deposit and therefore pose more risk to the issuer, credit card companies typically require at least average credit, and good or excellent credit for the better ones.

On the other hand, you can get a secured credit card even if your credit is low because they run on deposits. Some unsecured credit cards are touted as being easy to use, even if you have bad credit. But these cards usually charge extremely high fees. Therefore, financial planners recommend that you apply for a secure card rather than a high fee unsecured card.

Secured cards are primarily used to create credit rather than spend. Prepaid debit is a budgeting and convenience tool, but it doesn’t affect your credit. Because it’s all about borrowing and paying back money, a secured credit card can help someone build their credit.

As mentioned above, secure cards require that you provide a security deposit in cash – usually a minimum of 200-300 Dh. The deposit is usually equal to your credit limit, so if you deposit, say, Dh500, you will have a credit limit of Dh500.

A prepaid debit card also requires cash up front, but it is not a security deposit; it’s spending money. The card company uses the funds you load on the card to pay for your purchases. When you load, say, Dh500, you have Dh500 to spend. Once you’ve spent it, you can’t use the card again until you’ve put more money on it.

Mistake # 1: Some people deposit to a secure card thinking they are loading pocket money on the card: they deposit, say, 300 DH, then make a fee worth 300 DH, then they don’t pay. their bill because they don’t even know there is a bill to pay. Their credit ends up suffering in several ways: due to the card maximum, missing payments and the account being closed by the card issuer for non-payment.

Mistake # 2: Others get a prepaid debit card thinking it will help them build their credit: while regularly loading money into the card and making sure to never spend too much money, they often don’t realize until later that their credit scores are not going anywhere because none of the activity shows up on their credit report. .

Although they require a deposit, secured credit cards are a great tool for rebuilding credit. You should use one more effectively keeping the following tips in mind:

• Do not overload. Use the card sparingly and only make one or two small purchases per month.

• Pay your balance in full each month. When you pay in full, you will not be charged any interest. The interest rates of secured cards are generally higher than those of unsecured cards.

• Keep an eye on your credit score. When this improves dramatically, ask your issuer to switch to an unsecured card.

Many people find that by using a secure card carefully, it only takes about a year to improve their credit score enough to qualify for an unsecured card. Some issuers will allow you to transfer your secured line of credit to an unsecured line of credit, which is better for your credit score because it doesn’t require you to open a new account.

However, if you need to apply for a new unsecured credit card, you may be able to reap some of the benefits of good credit, such as lower interest, rewards, and lower fees. When the day comes, taking advantage of this time to rebuild your credit with a secured credit card will have been worth it.