Applying for a secured credit card is often the last resort for people without credit history or bad credit report. When you browse on the internet about how to build credit, you will definitely read articles and financial advice stating that secured cards are one of the best options.
Why is it so? What are secured credit cards? Actually, these cards are similar to other regular credit cards, but with only one difference.
When you apply for a secured card, you need to deposit money that will serve as your collateral. The amount that you will deposit is dependent on the type of secured card you choose. The amount usually ranges from a hundred to five hundred dollars.
The amount of money you deposit is also equivalent to your credit limit. In other words, if you deposited five hundred dollars, your credit limit is five hundred dollars.
People Who Need Secured Credit Card
Who are the people who need secured credit card? Generally, there are two major groups of people who seek these types of cards.
The first group is composed of people that have no established credit card history. Often, people without any established credit histories such as students and other first time users are being denied when they applied for unsecured credit cards. So, a secured card will work better for them.
The second group consists of people who need to re-establish good credit rating. Usually, people with bad credit are having difficulty obtaining approval for unsecured credit cards, so they use secured cards to regain good credit score.
How Can a Secured Credit Card Build Credit?
Whether you accept it or not, in our present economic society it is crucial that you own a credit card. People with clean and established credit have no problem of being approved.
What about others that don’t have credit history? Well, a secured credit card is what they need. How can secured cards help?
As mentioned earlier, secured cards function just like any regular credit cards. These cards can be utilized to purchase goods and services, and reserve for hotels, car rentals, and airline tickets.
When you use these cards, you have to make payments monthly. Then, your payment record is reported to the different credit bureaus just like other regular credit cards.
With your payments being reported to the credit bureaus, you are able to establish your credit history that will eventually help you qualify for an unsecured credit card, bank loans, and mortgages.
However, in order to make secured cards effective in building your credit history, you must make your monthly payments on time and never miss even one payment.
How to Choose and Apply for the Best Secured Credit Card
Applying for a secured credit card is actually not a problem because there are numerous banks that offer these cards. All you need to prepare is the cash for deposit that you will use as collateral.
Take note that not all secured card offers are the same. So, you must carefully read the fine print to find out if the card is the best for you.When checking the details for the secured card, here are some points that you should consider:
- Look at the annual percentage rate. Is the APR of the card the lowest that you can obtain? This is important if in case you will encounter problems with your monthly payments.
- Does the card have an annual fee? The annual fee is what you pay the card issuer for using their secured credit card. The lower the fee is of course better, but having no fee is the best.
- Check the length of the grace period provided in the terms and conditions. The longer the grace period is better for you. The grace period is the amount of time you have to update your current balance in full in order not to incur interest charges.
If everything is checked and you have made your choice for the best secured card that suits your needs, then you are more than ready to get your secured credit card and start building a good credit history.
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