Secured Credit Cards – What Are They and Why Would You Want One?
Do you know what secured credit cards are and why you may or may not need one? If you have an excellent credit rating, you may not even care about these cards. However, if your credit score isn’t as high as you’d like, read on.
Secured credit works essentially similar to regular credit cards. The only difference is that secured types, as the name suggests, are secured by cash collateral. This means that you will have to make a deposit to secure payment of your credit card purchases. The amount deposited is usually either higher than or equal to your credit limit.
Although these cards are secured by cash deposits, for some banks there still exist basic eligibility requirements such as opening a savings or checking account before your application may be approved.
Secured credit cards are usually mistaken for prepaid credit cards because both require cash deposits. Unlike prepaid credit cards, you still receive monthly bills for your purchases that you need to pay. The deposit made for secured types will not be disturbed by the banks unless you have defaulted on your monthly bill payments. Some banks even wait 6 months after default before they utilize the deposit and apply it against your outstanding balance.
If your application for this type of card is primarily for purposes of repairing your credit score, you have to make sure that your monthly payments are reported to the major credit bureaus. Finally, you have to make sure that you always pay in full every single month. All these factors are crucial to your credit rating.
In choosing secured credit cards, it is advisable to choose banks that offer: interest on deposit, flexibility in the amount of credit limit as a reward for prompt monthly payments, as well as those that offer discounts, rewards, and such other perks. The amount of processing fees and annual fees are also significant factors that you will have to consider if you want to get the best deal possible.
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