Do You Need a Secured Credit Card?

Nowadays you can't imagine your life without credit cards - it's really hard to find a store where they are not accepted! Getting a credit card is easy for people who have no problems with their credit history. But what about others? The solution for them is applying for a secured credit card.

A secured credit card works like any other credit card, but there is one big difference. You have to deposit a certain amount of money that will be held in a saving account. If you fail to pay your credit bills, the funds in the account will be used to cover your debt.

Generally the deposit ranges from $200 to $500. Your credit limit will be equal to your deposit. So if you put $200 in the account, you can charge up to $200. Some banks offer credit lines of double amount you have on the deposit.

Who should consider a secured credit card? It benefits those who have no or bad credit history. So if you want to build or improve your credit, apply for a secured credit card.

Keep in mind that a secured card is a credit card, not a debit one. You have to make regular payments, otherwise the interest is charged on the outstanding balance. If you fail to pay on time, it doesn't mean that the bank will immediately take money from your saving account. The security deposit is used to pay off the debt only as the last resort. An account which is less than 150 days delinquent will go on accruing interest and fees, so the total debt may be much higher than the deposit.

The main advantage of secured credit cards is that banks regularly report your payments to the major credit bureaus. That lets you build positive credit history. When you prove your ability to pay, you will be able to qualify for unsecured credit cards.

The terms and conditions of secured credit cards differ. Here are some things to pay attention to when you have come to applying for a secured credit card:

Annual Percentage Rate. Just because you have no or bad credit it doesn't mean that you have to pay the highest interest rate. Compare the offers and choose the most affordable credit cards with low APR.

Fees. The annual or setup fees can amount to several hundred dollars and eat away much of the credit. A secured card with no fee is the best, but a small one-time fee is okay too.

Grace Period. That's the amount of time you have to pay your debt in full without interest charged. So if you have a sufficient grace period up to 30 days and pay your balance in full every month, you will have a free loan. If there is no grace period, it means you have to pay interest from the day the purchases are made.

Credit reporting. The main idea of getting a secured credit card is the opportunity to obtain or improve your credit history. So no need to tell how important it is to get your payments regularly reported to all the major credit bureaus. If the bank makes frequent reports of your monthly payments, you build your credit history much faster.

Now you know how these cards work! If you are just starting out or had trouble with credit in the past, a secured credit card may be the most suitable way out for you.

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