If you plan to apply for a school loan, buy a home or lease a car, it helps to have a positive credit history. But if you have bad or limited credit, you’re not completely out of luck. A secured credit card is one option that can help you build—or rebuild—your credit score.
 

Secured credit cards function a lot like traditional credit cards. The primary difference is that with a secured card, you pay a cash deposit upfront to guarantee your credit line.

While credit history may be used to determine eligibility for a secured card, the line of credit it offers requires a security deposit. This security deposit acts as a safeguard for banks to cover any purchases, should you miss payments. Making your monthly payments on time is just as crucial with a secured credit card as with a traditional card. Remember, if you default on your payments, the card issuer may keep your deposit.

If you have bad credit, simply relying on cash, prepaid cards or debit cards to make your purchases will do nothing for your credit score because the activity doesn’t get reported to the major credit bureaus. When handled properly, using a secured credit card to help establish or rebuild your credit can demonstrate to your credit card issuer and to the credit reporting agencies that you are a responsible consumer who used credit wisely. To help build your credit—and to avoid interest charges—pay your balance in full every month, before the due date.

Secured cards are issued by most well-known credit card companies and banks. Similar to a credit card, you have to apply for a secured card. Once you’re approved, you can use your secured card for things like buying groceries or for booking a vacation—everyday expenses that you can repay immediately.
 

Now that you have an unsecured card and have successfully improved your credit, you may qualify for lower interest rates on mortgages, cars and other big-ticket purchases.