What Is a Secured Credit Card?
Before, we proceed further let us have a close look at what is a secured credit card? It is a tool that plays a pivotal role in building your credit history. It offers you an access to a credit line, and moreover, your payment activity gets reported to the credit bureaus. Secured here means that the card is backed by a collateral i.e. your cash deposit. On the other hand, unsecured means that there is no deposit or any form of collateral is required. A secured credit card is an ideal choice for all those with little or bad or average credit. Let’s say that you don’t have a credit history or you have recently become bankrupt, then in these cases, a secured credit card is the best option for you.
8 Unexpected Benefits of Using Secured Credit Cards
A secured credit card has various advantages, mainly for all those who have little or no credit. So, let us get to know more about the advantages of having a secured credit card –
- Grace Period – When choosing a secured credit card, it’s key that you choose one with a grace period. Without a grace period, you’ll owe interest on every purchase. This would make improving your credit history tougher than it should be.
- Help you establish a solid credit history.
- Can teach you how to use a credit card smartly.
- Most secured credit cards are accepted as a form of payment when traveling abroad. It’s a good idea to read the terms of your secured credit card in order to be aware of applicable charges when using it outside of the U.S.some secured credit cards with low foreign transaction fees and no annual fee. You require a credit card to make a hotel booking, buy a ticket, hire a car, or book airline tickets. If you have a secured credit card instead of a debit card or cash will also enable you to make the purchases.
- They typically report to credit bureaus. Unlike a prepaid credit card which lets you spend like a credit card, a secured credit card reports your payments to the credit bureaus to be included on your credit report.
- Having a secured credit card offer you a chance to rebuild your credit ratings. All you need is to pay your bills on time on a monthly basis while keeping your balance low.
- If you can have your account in good shape, even the lenders allow you to earn interest on your secured credit card deposit. Some secured credit cards place your deposit into an interest-bearing savings account. Depending on the interest rate, you might be able to earn a few bucks .You can have your deposit back along with the interest once you graduate to an unsecured card.
- Generally, secured credit cards come with low limits as compared to the unsecured credit cards, you tend to have a cap on your spending. The best part is that you can save yourself from getting in too much debt which, in turn, can harm your credit score
Which Are The Best Secured Credit Cards Of 2016?
For best unsecured credit cards you can visit Nerdwallet.
What Is The Difference Between Secured & Unsecured Credit Cards?
While choosing a credit card, not everyone is equipped with a sound financial knowledge. This is where you need to have holistic information between the secured and unsecured credit card so that you get to make a smart decision. Let us dig deep to know the difference between these two in detail –
– As for a secured credit card, you need you to have money, as collateral, in an account. The deposited amount plays as your credit limit, you can also raise your credit line, all you need to make more money deposit with the issuer. As for an unsecured card, there is no cash deposit required and the card limit is mainly dependent on your credit history. Talking about the secured credit card, the range can vary between $200 to $500 and as for the unsecured credit card, the range can vary between hundred to thousand dollars.
Do you qualify
– The credit history plays a pivotal role in deciding for which type of card you actually qualify for. If various delinquencies have been responsible for a low credit score, chances are more that you qualify for a secured credit card. If you have a bad credit score, you won’t be able to qualify for an unsecured credit card. There are unsecured credit cards that are not complicated to qualify but on the negative side, they come with high fees and interest.
Also Read – Top 5 Credit Card Scams In 2016
Fees and Annual Percentage Rate
– When it comes to APR and fees, a secured credit card is far more expensive as compared to an unsecured card. When it comes to a secured card, you have to pay an annual fee and a monthly service fee. With the unsecured credit card, you can have a low APR with a good credit. Most of the unsecured cards charge no annual fee from the users.
Report to credit bureaus
– When it comes to secured credit card, there are strong probabilities that they get reported to the credit bureaus and on the other hand, unsecured credit card don’t.
When Do You Think It’s The Right Time To Have A Secured Credit Card?
The moment you pay off your debts, there is a mixed feeling, both positive and negative, that you go through during debt payoff journey. I can still recall that moment when I was paying off my debt, I was going through shame and gratitude, and various other humanly feelings, including a lack of freedom. Well, I was the one who is responsible for my debts and it would my actions that will get out of this ordeal.
It’s not that credit cards did the shopping on its own, it was you who voluntarily took out the student loans. However, I fought hard to get myself out of the debt. And finally, when I came out of the debt, I found myself at a crossroad. I knew, deep down inside, that I have to build my credit from the scratch, as it was in shambles though there were some options that were at my disposal. Eventually, I finalized the option of having a secured credit card that can help me in rebuilding my credit. You can also find some secured credit cards which are best for rebuilding your credit.
- Secured Debts vs Unsecured Debts – What Is The Difference?
- Credit Card Debt Relief Programs – Debt Relief Options
- Unsecured Credit Cards : Best Credit Cards for Bad Credit
- Credit Card Hardship Program: Debt Relief Alternative
When you have dearth of options –
Once you have made a considerable amount of consumer debt, it’s not that easy to get a new credit card. Such case comes up when you have worked with a debt relief company. Entirely depending on the report submitted by the credit bureaus about your payoff, your score can be jeopardized. Not to mention the possibility of your score being already low in the first place, thus you will left with only a few choices. This is where a secured credit card comes into play. The majority of the credit cards are unsecured, this means that the bank takes a risk believing that you will make the repayment of your charges. A secured credit card is the one where you “secure your card” by depositing a specific amount of cash with the bank. This protects the bank and you get the access to your card.
When you are interested in rebuilding your credit –
One of the key elements behind a secured card is offering you the ability to rebuild your credit once again. You may have to struggle hard if your credit score is below average. The best secured credit cards allay this issue by offering you with an opportunity to show that you have made considerable amendments in your ways. This is when you should use all those new practices that you have picked during the debt repayment or credit card debt consolidation. You want to use the credit card, every month, for previously budgeted for purchases. Over the course of time, this will start improving your credit.
Most common questions you need to ask before getting a secured credit card
5 Things To Consider Before You Get Your Secured Credit Card
A secured credit card cater to one key purpose i.e. rebuilding your credit seeing that you don’t have many options. Once you have paid your debt, you may generate a feeling of conflict to have a new card, though if you plan to have the access to the credit in the near future, you want to consider this option. Following are some important things that need to be considered when getting a secured credit card –
- The funds are provided by you in order to secure the credit card. The issuing bank will be holding these funds on deposit.
- Ensuring that the issuer reports to all the three bureaus – TransUnion, Equifax, and Experian on a monthly basis. There are certain issuers who prefer to report only once to the bureau. This will not prove helpful for your efforts.
- There are chances that you will be turned down for a secured credit card. Every bank tends to have its own requirements. It is imperative that you have done your homework ensuring that you have what they seek.
- Make sure you are aware of fees. There are secured credit cards that can overcharge. There are chances that you won’t be able to get around the fees out there, but you don’t want to pay those hefty payments.
- It is imperative that you make your payments on time. If you are not able to, you should wait until you can and then go for the card. Make your best efforts not to reach the maximum limit of the card, but ensure that the utilization rate is kept low in order optimize your efforts.
I know, you will think that a secured credit card is something that you can avoid. But in reality, it is not and there is an availability of good ones. It is your task to make a smart decision to see yourself in a better position. That’s acceptable. If you are looking to rebuild your credit, having a secured credit card is one of the best available options that you have in order to get back on the track.