Credit cards are in the wallets of most people. Typically you get a credit card to help build good credit, or you want to buy something that is out of your price range. The problem is that people can get in over their head when using credit cards and go into debt.
This can cause problems that lead to bankruptcy and bad credit. If this has happened to you, or you are just trying to build up your credit and you have never had a credit card before, you may need to procure a secured credit card. There are other reasons such as making reservations for hotels or cars or being able to write a check at a department store that may also be valid reasons for using a secured credit card.
When you build or rebuild credit responsibly it helps give you a good credit rating and tells lenders, for homes in particular, that you are mortgage worthy.
What is a secured credit card? A secured card is a credit card that uses your own cash as a collateral deposit. This creates your credit line for the account. The amount of cash varies per company and can be as much as one thousand dollars or as little as five hundred dollars.
In some cases you are able to add more money to the card as well to increase the credit. Banks usually offer secured credit cards and sometimes a bank will reward you for good payments and add to your credit line without the need of additional deposits from you. Just remember, if a bank does add to your credit line, you still have to pay them back if you use it.
You can find secured credit cards online. Just be careful and make sure that the card issuers are credible. You can check with the Better Business Bureau to be sure. Credit unions are a good place to find secured credit cards too.
Over half of the credit unions in the United States offer secured credit cards to their members and they may even give you lower interest rates and not charge any annual fees. This is a very good way to begin earning a good credit score.
Charges are going to be included with most secured credit cards. If you shop around you should be able to find a good secured card that offers low fees. Begin by looking for a secured card that does not charge any application fees. Almost all secured credit cards charge an annual fee.
This is something that you need to be aware of because some of these fees have drastic variations. Do not sign up for a secured credit card without reading every last bit of the fine print. There may be hidden fees that will charge your card without your notice and before you know it, your entire amount of credit has been consumed by fees. In some cases, this has happened before a client could even use their secured card for the first time.
The amount you are required to deposit will vary per card. You could be asked to deposit as little as three hundred dollars or as much as one thousand dollars. This builds your credit limit however and depending on the conditions of your account, the deposit could be a small percentage above the initial deposit amount.
Not all banks will offer you a secured credit card, however. The trend in banking today is to not offer a secured credit card; instead a lot of banks are offering unsecured credit cards that offer low limits. This does not mean we are all in the clear.
Those lower limits come with hefty fees and higher interest rates which hurt consumers more than they may realize. The secured credit cards is a better choice, if not the only option for those who are just beginning to use credit or are trying to rebuild their credit and improve it. In some cases, only new credit card users are eligible for a secured credit card verses people who have a bad credit score.
There are some snags you will want to be aware of, however. Just like regular credit cards, secured credit cards come with good and bad options. It is very important that you find an institution that treats you like a valued customer and has low fees that prove they are trying to help you become a better consumer. In some cases you can be used if you are not careful. It is very easy to be taken advantage of in this situation. Be leery of secured credit card offers that insist you buy an insurance policy for a certain fee per month.
In fact, the Federal Trade Commission has begun to come down hard on institutions that charge fees illegally. Those fees can range from twenty five dollars to hundreds of dollars before you ever receive your credit card or loan that has been guaranteed.
The trick is that you will get either a simple credit card applications or nothing at all after you have sent your payment. Do not fill out any applications until you have made sure that the company you are interested in is reputable. There are a few questions you will want to ask to make sure the organization you are considering using, is following the law and not trying to cheat you.
The first question is, do you report, on a regular basis, to the three major credit agencies? Secured credit cards are mainly used to build a good credit history. This is why this question is most important. If the secured card issuer does not report to these bureaus then there is no major benefit to using their card. You can tell if this particular institution reports the credit bureaus if you receive multiple credit card offers in the mail after you have made several payments on time. You will also need to know if they flag the report as a secured card. If it is flagged as such, then this could keep your credit from being build up successfully.
Next you will need to know how long it takes to qualify for an unsecured credit card. So make sure to ask if you would qualify for an unsecured credit card after you have made several payments on time to your unsecured credit card. The card issuer will normally want to see that you make your payments promptly, so it takes about a year to build up to being offered a secured credit card.
Finally, you will want to know what type of account the deposit is made to and how much interest your deposit will earn. The answer should be consistent with what you would receive if you opened a savings account at your local bank.
Deposit options should include money market, certificate of deposit or savings account options. You will also want to know how long a bank will keep your money after you close an account. Most banks want to keep the remaining balance in your account to cover any stray fees that may come in within at least two billing cycles.
The best way you can make good use of a secured credit card is to make small purchases and pay them off every month. This will help build up your good credit. It is not recommended to carry a balance on these cards. Your credit score will only go up if you pay the balance due every month.
Although secured credit cards are a safe way to build your credit, with the correct options in place of course, it is not a good idea to keep such an account open for too long according to experts. Secured cards tend to have annual fees and higher interest rates.
It is important to have plenty of discipline to use a secured credit card for the purpose intended then graduate to an unsecured credit card. You should be able to prove to yourself that you can spend responsibly at this time. Secured credit cards are not intended for use over a long period of time; instead you should consider it a stepping stone and treat it with a lot of healthy respect and self-discipline.