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Secured Credit Cards
  • Credit cards are an important part of modern life, whether for making bookings, reserving flight tickets or shopping online. But as a result of previous bad debt, many people are denied applications for credit cards, despite them possibly having no current debt. Often, the only solution to this situation is for these people to get a secured credit card.

  • These cards require a cash deposit as security against your credit. For example, if you deposit 300 to the account, you are extended up to 300 credit.
  • This amount may be increased, either through further deposits in the security account, or responsible use of the secured credit card.

  • Often the credit limit can be a certain percentage above the amount in the account banks may even greatly extend the credit, knowing that consumers are less likely to default if they have something tangible to lose by doing so
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credit cards faq/glossary
The most common questions asked about Credits Cards.
Secured Credit Cards
In addition, the money in the deposit account will not be just staying there – you will generally earn what you would in a savings account in the bank anyway. Occasionally secured credit cards will be secured against the equity in the consumer’s house. This obviously gives a larger security (in most cases) and is a more serious risk for someone to take on as it could lead to the loss of their home.

Usually the lender requires fairly drastic situations before the deposit is taken – for example if the borrower is 5 or 6 months late in payment. As such, with responsible credit practices, there is little risk of losing the deposit account. Like any other credit card however, you must meet certain standards of income and age to qualify for one – in other words, you must demonstrate the ability to make repayments on the card. It is for this reason that deposit accounts for secured credit cards are so rarely called into play – secured credit cards are only given to those who can afford to pay them back, and have the element of loss to encourage them to do so.

While secured credit cards are a useful way to get credit for those with poor ratings, they are also a way to escape those very ratings. By keeping up your monthly payments on secured credit cards, you will be reported to credit bureaus as having done such, and will therefore gradually improve your rating. Eventually, you will no longer have to rely on the secured credit card, and will have worked your way out of poor credit ratings.

At that point you can trade in your secured credit card for a regular one. Some companies will allow you to convert your secured credit card to an unsecured card once you have reached an acceptable level of credit rating. Aside from being an immediate source of credit, a secured credit card is also a source of future credit.

Be careful in the choice of card you buy, however. Certain cards offer far better value than others do. Some companies attempt to charge high amounts simply to set up the accounts. Often people find their entire deposit eaten up by hidden fees before they are even extended any credit. It is therefore crucial that you shop around, read the fine print, and only sign up for a secured credit card with a respected and trusted company. Similarly, in order to make the most of your improved credit situation, make sure your secured credit card company reports to a credit bureau, or your new success in making credit payments will have been wasted.

Find out as much as you can about the particular secured credit card – the internet is an excellent way to do so. Once you find the secured credit card for you, however, you will be in an excellent position – it is almost impossible to miss a payment on a secured credit card, knowing that you have only borrowed up to the deposit amount. In this sense, they are considerably more useful than other forms of credit to people with bad credit ratings, and are less likely to create debt problems. On the other hand, you will also face higher interest and annual fees on a secured credit card than an unsecured card no matter where you go. Stick with it and you will soon qualify for regular credit.

Secured credit cards are an excellent way to get out of a negative credit rating, once you find the correct one for you. Once you qualify and start paying off the balance on the secured credit card every month, in as little as a year you can be free of the albatross round your neck that is the negative credit rating and qualify for an unsecured credit cart.