You might have heard the term secured credit card, but do you know what it is? There are two main types of credit cards out there. They are secured and unsecured. Most credit cards that you think of are the unsecured type. This means that you are extended credit from a lender, such as a bank, and can use that credit however you like. However, to use it, you have to pay a fee, which is called the APR.
A secured credit card is a great option for those who have bad credit and cannot qualify for a traditional card. This instrument can help to establish credit when someone is new to the credit world. It can also help rebuild credit for those who need it..
Secured credit cards are different. They are primarily for people who have poor credit. There are many features and benefits that a secured card can give the consumer. It can be used short or long-term and can fit any individual need no matter what the financial circumstance is. Here, we are going to show the consumer why secured credit cards for bad credit may be the right choice for a card holder.
We have information about secured credit cards for bad credit, below:
What are Secured Credit Cards for Bad Credit?
Secured credit cards are those that require a collateral, or cash deposit. This deposit is then used as the line of credit for that specific account. Here’s an example: you apply for a secured credit card and then put $400 into the account. This means that you can charge up to $400. In other words, that account has a $400 limit. Some lenders allow customers to later add money to that initial deposit. Others reward good customers who have a consistent payment history with a larger credit line without any additional deposit.
What Else You Should Know About Secured Credit Cards
Now that you know what secured credit cards are, there are other things you should know about them before you start applying. First, these cards are not available from every bank or lender. So, you might have to shop around a bit. Also, if you choose to get a secured card, not only do you have to put your deposit down, you also likely have to pay an annual fee.
Speaking of the deposit, you might wonder how much you have to put down. Most secured credit cards for bad credit require a $300 to $500 initial deposit. Remember, that deposit is your credit limit, at least initially. Different companies have different policies for deposits.
The main reason people get secured cards is to help them build up their credit score. So, make sure to find out if the lender reports to the credit bureaus before you choose that card. If they don’t report, you won’t build your credit history. After using and paying the bill on your secured credit card, you should start to notice your credit score inching upwards. If you start getting offers in the mail for unsecured credit cards, you know that this method is working.
Is a Secured Credit Card Right for Me?
Secured credit cards are a good idea for many people, but not for everyone. For instance, if you need money right now, one of our personal loans is a much better option. Often it takes a credit card a week or two to reach you. A personal loan is instant upon approval, and you don’t have to have good credit to get one.
Using Secured Credit Cards For Bad Credit
A secured credit card requires a deposit before use. The deposit amount can vary, but this initial money determines the credit line. Therefore, putting in more money at first is going to yield a higher credit limit. In this case, we advise that an individual needs to do what is best for their particular situation. It is important to keep in mind that the credit issuer can take that deposit if proper payments are not made.
Approval is not automatic. The credit issuer still has to check credit scores to determine the risk of lending money. Once the requirements are met, it is up to the consumer to use the card with care.
Additional Features Of A Secured Credit Card
There are many pros to having a secured card. When payments are made, whether on-time or not, they are reported to all of the three major credit bureaus. This is instrumental in helping establish and increase credit scores.
Also, the secured card credit limit can increase after a period of on-time use. At that point either the consumer can add additional money to the card to increase that limit. It is even possible for the credit issuer to increase the credit line without any more deposits. Depending on the individual, that increased amount can vary.
How Long Should A Secured Credit Card Be Used?
Secured credit cards for bad credit are meant to be used just long enough to get credit from bad to good. Once a good credit score is established, a more traditional credit card option may be the best choice to take.
While a consumer of the card can always use it for as long as desired, remember the fees and charges may be higher than other now available options. We can find out the best opportunities for all types of bad credit consumers.
Using a secured credit card is a practical and worthwhile way to re-establish broken credit. There are many advantages to be had when using this financial option. Always take care when using the card. The goal is to increase credit scores in the timeliest way possible. On-time payments and a zero balance every month can get an individual there in no time.