Secured Credit Cards – The Best Way To Re-Establish Your Credit
This article guides you through all aspects of secured credit cards. The article contains in depth information about the collateral that has to be offered for getting such cards. In addition to this the article explains the following:
- What is the principle behind secured credit cards?
- What are the drawbacks of secured credit cards?
- How can secured credit cards be obtained?
- How to use secured credit cards effectively?
When you shop around for the right credit card for you, you will quickly notice that there are many types of credit cards. There are special cards for students, for seniors, and for frequent travelers. You may also notice that there is a special type of card called a secure credit card. Perhaps you have already wondered what this term means.
How Secured Credit Cards Work
Secured credit cards rely on collateral to ensure that you will pay off your card debt. When you sign up for this type of card, you will be asked to select something as collateral. This can be your home, your car, your jewelry, or some cash amount. This is the collateral that can be used with your card. If you cannot repay your card debt, the company has the right to liquidate the items being used as collateral in order to pay off your debts.
Secured credit cards look just like regular cards and can be used in the same way. You can use your secured card at any establishment where the card is accepted and you can use the card to make telephone, online, or in-person purchases. The only difference is that the card company is secure knowing that even if you cannot repay your debts, the company will still be paid through the sale of some of your assets.
Choosing The Best Secured Credit Cards
If you have bad credit, you can often get a credit card by agreeing to get a secured credit card. Even if your credit score is very low after a bankruptcy, for example, and you are ineligible for unsecured credit cards, many card companies will be willing to grant you a secured card as long as you have some type of asset that can be used as collateral.
When choosing the right secured card for you, however, it is vital to compare several offers. This is because secured cards often have a few drawbacks, including:
- They require a security deposit
This basic down payment is required by many card companies, but the amount needed varies from company to company. Try to find a company that requires no deposit or at least a very small deposit. However, be aware that many card companies will require a deposit larger than the amount of your credit limit. If you want a $500 limit card, for example, a company may want a $500 or even $600 deposit. - Low credit limits
Many secured cards offer limits of $250 or less. If you want a secured card, compare several card offers to get the best credit limit you can get with your credit rating. Otherwise, you may find that your card is not as convenient as you may like. - Fees
While many unsecured credit cards charge no fees, most secured cards do have several fees for users. Again, this is because secured cards are often used by people with poor credit histories. When looking for the best secured credit cards, do try to find the one with the lowest fees possible.
How To Apply For Secured Credit Cards
One of the easiest ways to get a secured card is to visit banks who offer secured credit cards or to visit other companies offering secured cards. Make certain that you understand all the fees and requirements of the card you wish to apply for and bring proof of your assets with you when you come in to apply for the card. When it comes to secured credit cards, banks and other companies often ask you to apply in person so that they can check the deed to your home or other proof of ownership of your collateral.
When signing up for this type of card, you can expect a more involved application process, especially if your credit is very low. Do not take offence at this. Instead, find the most understanding financial officer you can at your bank or card company and work with him or her to ensure that you get the best card possible. Once you have applied for your card, the card company or bank will contact you to tell you whether you have been approved for the card.
Using Secured Credit Cards
Once you have your credit card, you can use your card just as you would use any other credit card. However, it is important that you keep in mind that your collateral as well as your credit rating are at risk. For this reason, it is vital that you keep your spending in control and only charge those purchases you really need. It is even more crucial that you pay off your credit card promptly and on time. This will help build your credit rating and will keep your assets safe.
Once you have been using your secured card for several months and have been making your payments on time, your credit rating will likely improve. At this point, you may wish to contact your bank or card company. They may be willing to grant you larger credit limits or may be able to offer you better rates and lower fees. After your credit rating has returned to normal, you may wish to switch from a secured credit card to a card with no fees and low interest rates. This will make your card more convenient to use.
If you have been in debt or have suffered from a bad credit rating, a secured credit card can be a big help. If you have decided on a secured card, use your card wisely and you will soon enjoy many financial benefits!
