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Secured Credit Cards 101
By: Beth Derkowitz
If you’re thinking about a credit card, but don’t want the hassle or the worry
of a traditional unsecured card, then you might be interested in finding out
more about secured credit cards.
Secured credit cards are basically a savings account that uses a credit card to
spend the funds. A cardholder will deposit money into an account and that amount
becomes the limit for the secured credit card. You can only spend that much.
Advantages
The advantages of the secured credit card are many. First of all, there aren’t
interest rates to consider because you don’t ever carry a balance. You can find
a secured credit card through some banks and most credit unions that are simple
to set up and reward customers for staying within their spending limits.
You can add money to the card if you wish and as you do so, you are creating a
healthy credit history that can make it easier to get unsecured credit cards in
the future. Unsecured credit cards are a great way to restore bad credit,
usually taking about a year until you are able to apply for an unsecured card.
These kinds of credit cards do report the activity to credit agencies,
increasing your rating as you spend responsibly.
Disadvantages
The trick with secured credit cards is that you do have a limit, but if you have
problems with spending, this is a good thing. If you run into an emergency,
however, this can be a bad thing. You will only have the money that is on the
card, so you might have troubles in those instances.
Another disadvantage is that some companies will charge an annual fee to use a
secured card. Looking at the find print of these service agreements will alert
you to the possibility of this and perhaps lead you to look elsewhere. Credit
unions tend to waive the fee.
There are also a lot of disreputable companies that are trying to get consumers
to sign up for a secured credit card to improve their credit rating, but also
telling them that they need to pay exorbitant fees as well as purchase other
unrelated services. If you see this kind of ‘deal’ or notice that the phone
number is a 900 number, don’t sign up with them.
Secured credit cards can be a step in the right direction for those with poor
credit, but only if you take the time to research what you’re getting into and
how it can truly help you.
About the Author:
Beth Derkowitz recommends Find Credit Cards for finding the Visa rewards credit
card that’s right for you. See www.findcreditcards.org/issuer/visa.php for more information. |
