Secured Credit Cards - the Basic Facts

 


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Credit card is a part and parcel of modern life. The credit card offers us the ease and simplicity to spend money without carrying cash, is versatile and handy to use and provides us the means to establish and recreate our credit rating. The secured credit card is however, not without its disadvantages, the main one being high interest rates charged on it.

How would you rate your capacity to purchase a home or the car you want or the loan you simply need? How significant is it for you to have a good credit rating? In order to establish and spruce up your credit score, the best possible option is to have a secured credit card.

A secured credit card is in effect the opportunity to regain a sound financial position.

Due to the easy accessibility of credit reports through well-established credit bureaus today, credit issuers rely increasingly on these reports to make their final decision on providing you credit. A credit card is often denied to you when you do not have a credit history. This is often in the case of the young adults who have never taken out a loan or have so far used a credit card through a parent. It can also occur in the case of divorced people who have never had a credit card in their name.

Secured credit cards thus provide the best means for anyone to establish a credit history. The secured credit card by virtue of being secured by your own money allows the issuer to feel safe, ensuring their money back in case you default. Since the issuer is also holding your money, they persuade you to make your payments regularly instead of losing your security deposit on the secured credit card.

Secured Credit Card - A credit card with a security deposit

Very often when you rent an apartment, the landlord will ask you to deposit an amount equivalent to a month’s rent into a special account. This amount acts as security and is not used till you move out. When you move, this money along with interest is returned to you. You will not owe the landlord any money if you leave the apartment without any damages. The same rule applies to the secured credit card. In a secured credit card you have to deposit an amount as security equivalent to 50-150% of your credit limit in a special account with the credit card issuer. The credit card issuing company will provide you with a secured credit card which is used like a regular credit card. The only difference being that only you and your credit card issuer know that the secured credit card has attached to it a security deposit.

Provided you use your secured credit card wisely, the security deposit will not be used. This means that the secured credit card will be used to make reasonably priced purchases and the monthly bills will be paid regularly and fully as far as possible. To increase the credit available to you on your secured credit card, you can either increase your security deposit or get as many secured credit cards as possible. The credit card issuer will soon increase your credit limit from 50% of your deposit to anywhere between 75% and 100%.

The interest rates on secured credit cards are usually quite high. In the even that you have been rejected for credit by some companies you will be thought of as a significant credit risk. The issuing companies are taking a huge risk in lending you money through secured credit cards, and these interest rates are based on these risks.

A secured credit card is not suitable for people with a solid and established credit rating as they can avail of credit cards with lower rates , rewards and other benefits. A secured credit card is for people who have had a bad credit or no credit to start with and need to mend their credit scores through a responsible show of credit card handling.

To read more about credit cards visit CreditRunner.com

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