Secured Credit Cards
Secured Credit Cards
Every time you apply for a credit card or loan, each single inquiry from that lender will be recorded on your credit report making too many inquiries is a signal to a potential lender that you are a risky customer just shopping for credit and not for real funds.
True or not, secured credit cards may be the right type of credit card for you because it is secured by a deposit account owned by the cardholder. This deposit consists of 100% to 200% of the total amount of credit desired, that is held in a special savings account.
However, cardholders of secured credit cards still may expect to make regular payments as they would with any other regular credit card, with the only difference being the card issuer has the option of recovering the full cost of the purchases paid to the merchants out of the deposit if the cardholders does not pay their credit balance in a timely manner.
Most entities issuers of secured credit cards consider that if the cardholder does not make the required payment, the account must be paid anyway and before the security is released instead of taking the money from the security to pay the balance due. This is a risk for the cardholders because their card is not cancelled and the balance does not set off the deposit.
Understanding all the terms of the agreement and not fearing to ask when in doubt is important because secured credit cards are the most viable option to allow individuals with poor credit, bad credit history or no credit history.
In fact, secured credit cards are the best option for rebuilding or cleaning up your credit history report, particularly if Visa or MasterCard endorses them, but always bearing in mind fees charged for secured credit cards more often may exceed those standard fees charged for ordinary non-secured credit cards.
Secured credit cards can be an excellent choice for many people, but there are a few things to know:
* Almost all secured credit cards have an annual fee. But these fees can vary greatly from one issuing company to another. Shop around.
* Many banks no longer offer secured credit cards, but often credit unions do. If you want to go this route, you can open an account at many credit unions for as little as $5 and then look into the secured credit card there.
* Most issuing companies will require that you pay the balance in full each month. They don’t take your payment due from the money you have deposited – you must send a payment just as you would for a traditional credit card. These are usually not revolving credit accounts.
If you think a secured credit card is the right thing for you, there are some dos and don’ts to consider. First, the dos:
* DO shop around. Not all offers are the same. Don’t take the first offer that appears in your mailbox. Do your own research.
* DO look into getting a secured credit card with a higher balance if that’s what you need. In other words, if you have $3,000 to deposit, find an issuing company that will allow you to deposit that much to start so your limit will be higher.
* DO make sure this is the best option for you. If you have never had credit before, or you have severely damaged credit, this might be the only option. But if you think you can get a traditional card, that’s a better option.
* DO read all the fine print. Every single word. Some companies charge so many fees, your small $300 deposit might be eaten up in fees before you can ever use the card. Some require you to purchase insurance, for $50 or more a month. But many companies don’t do these things and those are the companies you’re looking for. Do your research and get the best deal for you.
Although secured credit cards are a good option for many people, there are some don’t considerations. These include:
* DON’T be casual about this credit card. If you have damaged credit, using a secured credit card is an excellent way to re-establish your good credit rating. If you have never had credit, this is a way to establish credit so you can acquire traditional credit later.
* DON’T try to go over your limit (or deposit amount). Not only will the charge not go through, but it will be a mark against you. Keep careful records each month you use the card so you know you’re not charging right up against the credit limit.
