How do credit lines work?

[Anonymous]

Hi, as a new user to credit cards I am still not entirely sure how credit lines work. So, I have a secured credit card with a credit line of $500. If I opt in to making a total purchase of around $1000, however it is in a 6 month plan of $150 (I know the figures do not match but it's merely an example), which only charges my card $150 a month, not $1000 at once. If I pay off that $150, I end up with a due balance of $0 until the next month when I am again charged $150. My credit line available after the purchase is $350/$500. Will that credit line return to $500/$500 at the end of the month since the $150 is paid in full, or will I go to $200/$500 when I receive the next charge a month later? If such a case happens, how do I recover the full $500?

[KJinNC]

It will be $500 when you've paid your balance in full.

The secured part isn't a factor in how this part works. It would be the same if it was an unsecured card with a $500 limit. Either way, you will have a minimum payment (pays the interest and a little of the principle), but will be better off paying in full if you can (this way, you pay no interest).

If you make a minimum payment, your available credit will be (in this example) $350 plus however much principle the minimum payment covers, let's say $20, so let's say $370. If you pay in full, your available credit will be $500.

One day when either you close the card or the card graduates, you get the security deposit back.

One thing to be aware of is, if you were to think "I don't need to make a payment because they have my deposit already" (treating it like a prepaid Visa or debit card), you will get dinged for that for making late payments. Again, this part of it works the same as if the card was not secured.

At the conceptual level, the $500 limit is the lender's money that you have to pay back; it is NOT your $500 deposit; but the lender was willing to loan it to you because it is guaranteed by your deposit. Aside from paying the deposit and getting the deposit back and it possibly showing on credit reports as a secured card, it works just like other credit cards. It can build your credit just like any other credit card, or if mismanaged, can damage credit just like any other credit card.

I hope that helps, let us know if any other questions! Welcome to the credit-building journey and have a great 2020.