If you’re looking to build credit but are not sure of the best option to get started, you may want to consider credit cards.
First, it’s important to know how credit cards work and have a plan to use your card responsibly before you commit to being a cardholder.
In this article, you can learn more about using unsecured credit cards for building credit and how to choose the right card for your particular needs.
When you think of a credit card, you’re probably thinking of an unsecured card.
An unsecured credit card doesn’t require collateral to secure your credit line. You can get unsecured cards from all of the major payment networks such as Visa, Mastercard, and Discover.
Secured credit cards require upfront collateral for approval, usually in the form of a refundable security deposit.
If you can’t pay your bill or stop making payments, your credit card company uses your deposit to cover your balance. This increases the approval odds for someone with poor credit.
Most secured credit cards refund your deposit after making consistent on-time payments. Secured cards usually start with a low credit limit, but you may qualify for a credit limit increase if you pay your bill on time.
Unsecured credit cards, on the other hand, often start with higher credit limits. And rather than using a deposit to secure your card, issuers use your creditworthiness to approve you for a card.
Oftentimes, this means you need a good credit score in order to qualify.
Like other forms of credit, credit cards build credit by reporting your payment and other information to credit bureaus.
Three major credit bureaus—TransUnion, Equifax, and Experian—build credit reports.
Your credit report is used to calculate your FICO score. FICO credit scores are made up of five factors:
While unsecured cards usually have stricter credit requirements, you can still find options to help you build credit.
There are a few types of unsecured cards that often have better approval odds for fair credit.
There’s no one-size-fits-all approach when it comes to building your credit history.
Review the pros and cons of using an unsecured credit card for building credit.
Credit building cards are a great way to improve your credit score—if you use them correctly.
Consider a few things before signing up, including:
Building credit takes time. You may have to make on-time payments consistently to get a better credit score.
Get started today by comparing your credit-building options to find which one best fits your financial situation.
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