Everyone has to start their credit history somewhere, and secured cards can be the building block to get you there.
Dear Opening Credits,
What would be the best credit card for a person with low income and no credit history who is over 65? – Mae
The ideal card for you is one that provides both the cardholder and the credit issuer with a tightly woven safety net. It’s called a secured credit card. Many issuers offer them, and they’re perfect for people who have no or limited credit histories.
To qualify for a secured credit card, you don’t need to have a well-paying job. As long as you have enough money coming in to cover what you charge, you should be able to get a secured card.
How secured cards workIn lieu of an established and positive credit record, the issuer asks for a cash deposit. In most cases, the credit line is the same amount, since it acts as security against the charges you make. If you were to rack up debt but did not send in your payments, the credit card issuer would simply take what’s owed from the funds held in deposit.
A security deposit greatly minimizes the risk an issuer takes in providing you with a credit line, but it also gives you peace of mind. You’ll always know the money is there. If you ever want or need to claim it, you can close the account and the issuer will release the deposit.
Any remaining balance would be deducted, but if you don’t owe anything you’ll walk away with the same amount you put down.
If you’re concerned about your age and income source, don’t worry. According to the Equal Credit Opportunity Act, credit issuers can’t use age as a determining factor. Nor can they discriminate against income sources such as retirement account distributions or Social Security.
Check out secured card offers
There are a multitude of secured cards on the market, so shop carefully. Some secured cards charge an annual fee, and others don’t. Interest rates range from good (very low teens) to terrible (mid-20s).
Also, most but not all secured cards report your account activity to the credit reporting agencies. If your intention is to build your credit history to become eligible for unsecured cards, having your payments reported to the credit bureaus is something you will want in a secured card.
Read over many of the secured card offers before deciding on one.
4 tips for smart use of a secured card
When you have the card, use it to your advantage:
- Mind your credit limit. If the credit line is $250, that’s the most you can charge until you pay down what you owe. Even better, keep your spending as far below the credit limit as you can. Keep track of your purchases so you don’t your card isn’t denied if you hit the maximum.
- Treat your credit card as a 30-day loan. Most credit cards let you send less than the amount you charged and then carry over the remaining balance. If you do, though, interest will accumulate and you can end up in a state of expensive and perpetual debt. Instead, pay your bill in full.
- Pay before the due date. Your card issuer will send your payment history to the credit reporting agencies. Paying on time is vital to building a high score, so never skip a due date. You can even pay more than once a month to keep your credit limit low.
- Monitor your credit card statements. Review your credit card transactions on your card issuer’s website. You can do check your statements as often as you like, but weekly is not a bad idea. By checking your statements regularly, you can address any problem or inaccuracy right away.
In about six months, pull your credit reports and scores. You can do so for free at AnnualCreditReport.com, and you can get a get a free credit score and report here at CreditCards.com.
Read your credit reports thoroughly to make sure everything is correct. Your credit score will fall between 300 to 850. Make a note of your credit score, and then check your score again when you’ve hit the one-year mark with this card.
If you’ve used your secured card regularly, stayed out of debt and always paid on time, your credit score should be higher and your credit card options, including many unsecured cards, will be greater!
See related: 9 things to know about secured cards