Outlining Secured Credit Cards

Thursday, November 10th, 2011

Even if you have moved away from using credit cards, either by choice or by necessity, you still need to carry one in case you need to reserve a rental car, purchase plane tickets or book a hotel room. It is also wise to have a credit card on hand in case an emergency should arise. It is also necessary to use a credit card from time to time in order to build credit history, cultivate a good credit score and establish your creditworthiness. Good credit history is essential for anyone who intends to apply for a loan or a mortgage at some point in the future, and makes you eligible to receive the best credit card offers with the lowest APR’s and most generous rewards programs.

However, if you are someone who doesn’t have any credit or if you have a poor credit history due to some financial missteps, it may prove challenging to qualify for a regular line of credit. In that case, a secured credit card may be a good way for you to repair damaged credit or build up your credit from scratch.

Secured Credit Card Basics

A secured credit card is a card that requires a cash deposit. The amount deposited then becomes the line of credit for the account. There are many banks and credit unions that offer secured credit cards to customers coming from iffy credit situations, although no all of them do. Occasionally, you may find that a secured card is only an option for people with no prior credit history, not to those who have poor credit. Be mindful that different lenders will have different fees attached to such cards. Be on the lookout for application fees and annual fees, and make sure you shop around and compare in order to get the best deal.

Secured Credit Card Details

The amount needed to deposit to open up a secured credit card will vary from bank to bank, although it is $300 to $500 in most cases. The card’s credit limit will either match the amount deposited or be some percentage above the deposited amount. Your deposit will earn interest, typically at the same rate a savings account would earn at that same lending institution. Deposit options vary, ranging from a regular savings account to a money market account or a certificate of deposit. It’s a good idea to inquire about how long the money must stay on deposit after you close the account, because it is not unusual for banks to want to hang on to the deposit for a few additional billing cycles should any additional charges surface.

Secured Credit Card Benefits

Banks will sometimes reward responsible behavior with secured credit cards by raising the credit limit without requiring that additional deposits be made. A secured credit card does not allow for any overspending, which means that the cardholder can avoid some of the financial pitfalls that accompany unsecured cards, like spending beyond your balance and incurring fees. And as long as the bank reports your secured credit card activity to all three major credit bureaus, you will be building up your credit. Check with the bank to make sure that they do report secured credit card information before you apply.

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