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How to Build Credit with a Secured Credit Card

Ready to improve your credit scores? Laura answers credit questions from podcast listeners and readers. She explains what a secured credit card is, where to find one, and how to use the account to build or repair your credit no matter your situation.

By
Laura Adams, MBA,
February 10, 2016
Episode #437

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How to Build Credit With a Secured Credit CardBuilding credit is an important part of having a healthy financial life. But it’s challenging when you’re just starting out.

I received a question from Linda H. who says, “I’m about to graduate college and am wondering if you could do a podcast with tips for people like me who are building credit from scratch?”

Even if you’re decades older than Linda, you might still be struggling to build credit, like Rosemary M. She says, “I’m a U.S. citizen who lived overseas for 17 years and built a stellar credit rating. I returned to the U.S. six months ago, but can’t get approved for a credit card even though I have a job and pay all my bills on time.”

In this post I’ll answer these and a couple more credit questions that I recently received. You’ll find out how a secured card works and why it’s a foolproof tool to build credit—if you choose the right product and use it the right way.

Free Resource: Laura's Recommended Tools—use them to earn more, save more, and accomplish more with your money!

Why Having Good Credit Is Important

If you’ve been following this blog or the Money Girl Podcast, you know the amazing benefits of building and maintaining great credit. The better your credit the less you pay for debt, such as credit cards, lines of credit, car loans, and mortgages.

Qualifying for a 30-year mortgage that charges 1% less because you have good instead of average credit could save you $30,000 on a $150,000 loan. The bigger your loan the more interest is at stake.

But even if you decide to never borrow a penny, your credit rating still affects your finances. For instance, having poor credit means you could be turned down by a prospective employer.

Companies in most states can screen your credit as a routine part of their hiring process, if you authorize it. Employers can see some, but not all, of the information in your credit file.

Poor credit could also keep you from getting approved to rent an apartment or home. It’s also likely to increase the amount you have to pay for security deposits on different kinds of utility accounts, such as power, cable, and a cell phone.

Your credit is also a big factor in the rates you’re quoted for auto insurance and homeowners insurance in most states. Depending on where you live, having poor credit means you could be charged twice as much for coverage than if you have excellent credit.

See also: What You Should Know About Credit-Based Insurance Scores

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