What are Graduating Secured Credit Cards?

Graduating Secured Credit Cards: What Are They and How Do They Work?

If you're new to the world of credit cards, you may have heard of something called a "graduating secured credit card." But what exactly is it, and how does it work? In this article, we'll take a closer look at this type of credit card and explain why it might be a good option for those who are just starting out with credit.

What Is a Graduating Secured Credit Card?

In simple terms, a graduating secured credit card is a type of credit card that is designed for people with little or nocredit history. It works by requiring the cardholder to make a deposit upfront, which is then used as collateral for the credit limit. This deposit is typically equal to the credit limit, and it acts as a safety net for the credit card issuer in case the cardholder doesn't make their payments.

The "graduating" part of the name refers to the fact that, over time, the cardholder may be able to upgrade to an unsecured credit card. This means that they will no longer need to make a deposit, and their credit limit will be determined solely based on their creditworthiness.

How Does a Graduating Secured Credit Card Work?

When you apply for a graduating secured credit card, you will be required to make a deposit upfront. This deposit will typically be equal to the credit limit, although some issuers may require a larger or smaller deposit depending on your credit profile. Once you've made your deposit, you'll be issued a credit card with a credit limit equal to the deposit amount.

From there, you'll need to use your credit card responsibly in order to build up your credit history. This means making your payments on time and keeping your balance low. If you do this successfully, you may be able to upgrade to an unsecured credit card after a certain period of time (usually around 12-18 months).

Why Would You Want a Graduating Secured Credit Card?

There are a few reasons why you might want to consider getting a graduating secured credit card:

1. You're new to credit. If you're just starting out with credit and don't have much of a credit history, a graduating secured credit card can be a good way to build up your credit score.

2. You have a poor credit score. If you have a low credit score, you may have trouble getting approved for an unsecured credit card. A secured credit card can be a good way to start rebuilding your credit.

3. You want to avoid overspending. Because the credit limit on a graduating secured credit card is equal to the deposit amount, you can't spend more than you have. This can be a good way to avoid overspending and getting into debt.

Tips for Using a Graduating Secured Credit Card

If you decide to get a graduating secured credit card, here are a few tips to keep in mind:

1. Make your payments on time. Your payment history is the most important factor in determining your credit score, so it's important to make your payments on time every month.

2. Keep your balance low. Your credit utilization ratio (i.e., the amount of credit you're using compared to your credit limit) is another important factor in determining your credit score. Keeping your balance low can help improve your credit score.

3. Upgrade to an unsecured credit card when you're ready. Once you've built up your credit history, try to upgrade to an unsecured credit card. This will allow you to get your deposit back and enjoy the benefits of an unsecured credit card.

Conclusion

A graduating secured credit card can be a good option for those who are just starting out with credit or who have a poor credit score. By making your payments on time and keeping your balance low, you can build up your credit history and eventually upgrade to an unsecured credit card. Just be sure to choose a reputable issuer and read the fine print carefully to avoid any surprises.