You may be trying to establish or re-establish your credit history. A secured credit card can prove to be really important in doing this. These cards can often pave the way to traditional credit cards which typically offer better rewards and lower interest rates. How do they work?

To qualify for most unsecured credit cards, you need somewhat decent credit because this shows credit card companies that you can repay your loan. Without sufficient credit history, these companies cannot be convinced that you will pay back what you owe. A secured credit card shows that you can deal with credit in a responsible manner. This is in form of a security deposit which the card issuer can use as collateral in case you default on the loan. For instance, a deposit of $500, gets you $500 worth of credit. Unlike a prepaid credit card, the deposit you make to secure your credit card is only used in case you fail to pay your credit card bill.

Here are a few tips for using your secured credit card:

Credit bureau reporting: Make sure your card issue reports your credit use to credit bureaus. These companies compile credit reports, and your good use of your secured credit card will be recorded to build your credit history favorably.

Regular use: To show that you can manage credit responsibly, use your card regularly. A couple of tiny purchases per month will help build your credit score and history

Always pay your bill on time: This is a very important step in order to build your credit history. If you cannot pay off your balance in full, at least make the minimum payment by the due date. If you do not, your credit score will drop.

Don’t overspend: Make sure you do not owe too much on your account. If you need to purchase things close to your credit limit, pay if off immediately.

Enjoy your new unsecured credit card: When you have used your secured credit card for a while, your credit score may become average which means that you have a chance of being approved for a regular unsecured credit card. Once you are done using your secured credit card, the card issuer should issue your security deposit back. Keep using your unsecured credit card regularly and making payments on time.