A secured credit card is a form of credit card, which is secured by a money deposit from the card holder. Consumers usually obtain secured credit cards in order to boost their credit score or establish a good credit history with their credit card company. A credit card, unlike a debit card, does not make purchases unless the money for the purchase is deposited into an account. In some cases, consumers will be issued an unsecured card which means they do not have to deposit any money to use the card. However, it should be noted that the higher the balance of the credit line, the more security the financial institution may require for the account.
A secured credit card is different from a prepaid credit card in that the consumer must deposit money into an account prior to being able to make a purchase using the card. The amount deposited will determine the maximum credit line offered to the consumer. In order to discover if you meet the requirements set forth by the credit reporting agencies, you will need to request your credit report. You should mail or call the three credit reporting bureaus to obtain a copy of your credit score, current credit profile and a list of the items that you currently own which are listed on your account such as car, home or other valuable item.
One major difference between a secured credit card and a unsecured credit card is that consumers who have placed money into an account to use as collateral will have a greater chance of obtaining an unsecured credit card. A financial institution, for example, would not be able to obtain a high interest rate on a secured credit card if the customer were to deposit their savings. This would be considered an unsecured credit card for that financial institution. Many consumers also use cash deposits to obtain secured credit cards. This is because cash deposits can provide an extra measure of security to cardholders.
If a consumer does not meet the eligibility requirements needed to obtain one of the secured credit cards, they may receive an unsubsidized deposit for an introductory period of six months to a year. During this period, the consumer will earn points or cash that can be used towards future purchases. During this time, the consumer will be billed on an annual basis for the amount of the deposited amount plus any applicable taxes and any applicable fees. At the end of the promotional period, the consumer will once again have to meet the credit limits and pay the bill.
A responsible use of a secured credit card can allow consumers to establish themselves as good credit risks. Good credit profiles allow consumers to build a history of financial responsibility. It is not uncommon for consumers with a solid history of responsible use to be offered an unsecured credit card with higher limits and better terms. The key is to make payments on time and to avoid using any cash deposits to extend the term. A responsible use of a secured credit card allows consumers to enjoy rewards, lower interest rates, and no annual fee, while building their credit history.
Credit cards are an essential part of everyday . . . . . . life, but consumers need to understand how they work and how they affect their finances. If a consumer consistently makes payments on time and avoids making cash deposits, then they can build good credit profiles over time. However, it is also important to remember that a sudden rush of purchases, emergencies, orcases of mistaken identity can all negatively affect a credit score. By being responsible and by establishing a good budget, consumers can help themselves build a positive history. If consumers make responsible use of their secured credit cards, they can help themselves to the best financial position possible.