A secured credit card is simply a form of unsecured credit card, which is secured by a money deposit from the holder. Many consumers usually obtain secured credit cards in order to enhance their credit history or build a better credit score. However, secured credit cards usually have much higher credit limits and fewer fees and charges than unsecured cards do. This article will discuss the benefits and disadvantages of secured credit cards.
The main benefit of secured credit cards is the fact that they don't affect your credit score. This is a major benefit, as most consumers are unaware that their credit reports contain information on all credit purchases and transactions. The credit reporting agencies, such as Experian and Equifax collect information about every credit transaction and report it to the credit bureaus. These credit bureaus then share this information with creditors, like banks, to determine whether or not you are a good credit risk. This information is important because it tells them if you are a high risk for them to extend credit to. Credit card issuers use this information to determine the interest rates on your secured credit cards and they may also affect your credit score by denying credit if you have too many secured credit cards.
Another benefit of secured cards is that they usually offer a much better interest rate than other types of credit cards. They may also offer much more flexible terms, including low APRs and low ongoing fees. This is especially useful for people who have limited credit histories or no history at all. This allows them to get a better interest rate on their secured cards, which will help to pay off their debt much faster.
However, some secured credit cards work very well for people with good credit. In fact, many of these credit companies are specifically geared towards helping people with good credit records. One thing to keep in mind is that if you have a history of bankruptcy or foreclosure, then you may want to avoid some secured credit cards that offer short term interest only payments. While they may help you get out of debt quickly, they may make it much more difficult to get your credit rating back up again in the near future. It is best to find a company that offers long-term options that can help you rebuild your credit over time.
A third way that secured credit cards may help your credit is that they often come with a deposit required for usage. Most of these cards require a twenty-five percent down payment, but some may require up to as much as seventy percent deposit. The reason that you need a deposit is so that the credit card issuer can set up the card for you. They usually give you a certain period of time during which you are responsible for making the deposit each month. If you do not make the deposit each month, then you will have to pay the balance in full at the end of the term.
Before you start applying for secured credit cards, be sure to do your research and look at all of the different fees and charges. Some of the fees that you will encounter are application fee, transaction fees, ATM fee, grace period, the minimum monthly fees, and annual fee. These fees vary from one card to the next. Find the best secured cards by looking for the lowest fees and charges. You can compare different secured credit cards online by using a secure credit card comparison website. This is a fast and easy way to get a list of secured credit cards that best suit your needs.