A secured credit card is the best option for people with bad credit rating. A secured credit requires a certain amount of money to be deposited into an account (usually between $300 and $500) and that becomes your credit limit. Your deposit, in fact secures the credit card. In case you don’t pay your bills, your money becomes the issuing credit card company’s security against default.
After you have established good credit, the credit card company might extend you more credit without an additional deposit. In addition, you can always increase your credit line by depositing more cash.
But if you are thinking that why get a credit card when you already have the money to pay for the purchases you want to make, then do consider that nowadays a credit card has become a necessity. You will require it to make airline reservations, booking a hotel room, getting membership for video shop, everywhere you go you will be asked for it.
Things you should know about Secured Credit Cards
Secured credit cards can be an excellent choice for many people, but there are a few things to know:
- Most of the secured credit cards have an annual fee. It is better to shop around before deciding which lender to go for as these fees can vary greatly from one issuing company to another.
- Many banks do not offer secured credit cards any longer, but many credit unions do. If you want to go this option, you can open an account at many credit unions for as little as $5 and then look into the secured credit card there.
- You will be required to you pay the balance in full each month by most of the issuing companies. They usually 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.
Do’s of Secured Credit Cards
- DO shop around and do some research on your own. Don’t take the first offer that appears in your mailbox, as all the offers are not the same.
- DO try to get 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 don’t have any credit history, or you are suffering from bad credit, then 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 carefully and extensively. Some companies charge so many types of fees that 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 there are companies that don’t do these things and those are the companies you’re looking for. Do your research and get the best deal for you.
Don’t of Secured Credit Cards
- DON’T take this credit card casually. If you have bad credit rating, then using a secured credit card is an excellent way to re-establish your good credit rating. If you don’t have any credit history, then this it is a good way to establish a credit history so you can acquire traditional credit later.
- DON’T go over your deposited limit. You will not be able to proceed and it will be a mark against you. It is better to keep a track of the bills each month, when you use the card so that you know you’re not charging right up against the credit limit.
