Secured Credit Cards Can Help People with Bad Credit
If you have bad credit or no credit history, one of the tools that can help you improve your credit score, as well as establish credit are secured credit cards. Secured credit cards work at the point of sale the same way as a normal credit card and most vendors can’t even tell the difference, however secured credit cards do have many differences. Here is some information on how these types of credit cards can help consumers with bad or no credit.
Secured credit cards are a mix of a credit card and a bank savings account. If you have bad credit and are unable to be accepted for a standard credit card, one of your options is a secured credit card. You complete an application and once approved are asked to make a deposit to the secured credit card company which will use this money to start your own secured credit card account. Instead of having an unsecured loan which is what most credit cards are, your credit card is secured with money that you have already deposited into your secured credit card bank account.
For instance, if you would like a credit card balance of $500, you will in most cases need to deposit $500 into your secured credit card bank account. Then you can borrow money through your secured credit card when shopping. Besides having to have a credit card balance, most secured credit card companies require applicants to pay a fee each year. Fees can vary widely, but $50 to $200 or more are common. In addition, you will usually pay APR interest on the money that you borrow from your own account. However, most secured credit cards do pay you interest on the amount of money that is in your secured credit card savings account.
Usually after you have been with the company for a year or two (an in some cases less) and have been responsible with your secured credit card, many secured credit cards will increase your credit card balance without having you increase your savings deposit. This turns your secured credit card into a quasi secured/unsecured card.
Secured credit cards are an excellent way to rebuild your credit score showing potential lenders that you are now more reliable and have been responsible with your debt. For people with no credit history, this is an excellent way to establish credit. It should be noted that for consumers with average and above average credit ratings, secured credit cards are unnecessary and usually much more costlier than standard credit cards to maintain.
