Secured credit card is credit card requiring the cardholder to deposit a specified amount of funds into an account which will serve as a security in case such card account becomes delinquent.
How Secured Credit Card Work?
In most cases, secured credit cards are reserved for persons having below average or bad credit ratings. Such individuals may find it difficult to gain membership on an unsecured credit card and where membership applications are successful, interest rates offered may not be favorable.
Secure cards offer high credit limit that’s often as a result of how much the cardholder can afford to deposit. They may not charge very low interest but are cheaper than unsecured cards in the long run. Card issuers require a security deposit to protect themselves from accruing liability in cases of severe delinquency. This security deposit is usually left untouched and will only be debited when the card holder chooses to close the card account, or the card account is closed by the issuer due to a long run of defaults on payment.
During the defaulting period, the card account incurs interest and late fees. When the account is closed, all charges and payments owed are deducted from the security deposit and whatever is left is given to the cardholder.
Secured cards come on the Visa or MasterCard networks and can be used virtually everywhere an unsecured credit card is accepted.
Secure cards come in different shapes and sizes and there are numerous brands available in the market. When choosing a secure credit card, the most important factors to watch for are:
The bulk of card issuers require you deposit at least 50% of the intended amount sort after. This means to get a $1,000 credit line, you must be ready to make a security deposit of $500. Some card issuers may have different rules as to how much the intending card holder should deposit. While some encourage a 50% deposit, others require up to 200%.
Secured Credit Card Does Credit Reporting
If you’re considering going for a secured card it’s assumed that you have the need to build or rebuild credit and this can only be done when your card is reported regularly. The best card issuers will report at least every 30 days to 2 or 3 of the credit bureaus (check card agreement or contact an officer) to confirm this before applying for a product. View list of Credit Reporting Cards.
If you think your deposit means won’t earn interest on transactions, well think again. Secured credit cards are known to charge some of the highest purchase APR. Before applying for a product figures such as late & annual fees, normal purchase APR, and APR charged after you pay late should be checked and noted.
Most card issuers will approve you regardless of credit history. All you need do is pass a few verification checks and have your deposit ready. Secured cards can be scary to those who don’t know much about them, but have come to be a preferred option much helpful when building and rebuilding credit is a concerned. As compared with usual unsecured credit cards, most secure cardholders are not likely to get approved and even where approved are likely to incur very high APR and annual fees which in the long run could prove to be more expensive than getting a secure card.
Secured cards are good for budget conscious persons, young adults who’d like to build a solid history or person who have bad credit due a delinquency on some other credit facility. It ensures the card holder gets only as much credit as he can afford thus reducing the possibility of delinquency and accumulating debt.
Card issuers have noticed that card holders are far less likely to default on payment when there’s something at stake. With a secure card both parties are protected.