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This article guides you through all aspects of secured credit cards. The article contains in depth information about the collateral that has to be offered for getting such cards. In addition to this the article explains the following:
What is the principle behind secured credit cards?
What are the drawbacks of secured credit cards?
How can secured credit cards be obtained?
How to use secured credit cards effectively?
When you shop around for the right credit card for you, you will quickly notice that there are many types of credit cards. There are special cards for students, for seniors, and for frequent travelers. You may also notice that there is a special type of card called a secure credit card. Perhaps you have already wondered what this term means.
How Secured Credit Cards Work
Secured credit cards rely on collateral to ensure that you will pay off your card debt. When you sign up for this type of card, you will be asked to select something as collateral. This can be your home, your car, your jewelry, or some cash amount. This is the collateral that can be used with your card. If you cannot repay your card debt, the company has the right to liquidate the items being used as collateral in order to pay off your debts.
Secured credit cards look just like regular cards and can be used in the same way. You can use your secured card at any establishment where the card is accepted and you can use the card to make telephone, online, or in-person purchases. The only difference is that the card company is secure knowing that even if you cannot repay your debts, the company will still be paid through the sale of some of your assets.
Choosing The Best Secured Credit Cards
If you have bad credit, you can often get a credit card by agreeing to get a secured credit card. Even if your credit score is very low after a bankruptcy, for example, and you are ineligible for unsecured credit cards, many card companies will be willing to grant you a secured card as long as you have some type of asset that can be used as collateral.
When choosing the right secured card for you, however, it is vital to compare several offers. This is because secured cards often have a few drawbacks, including:
- They require a security deposit
This basic down payment is required by many card companies, but the amount needed varies from company to company. Try to find a company that requires no deposit or at least a very small deposit. However, be aware that many card companies will require a deposit larger than the amount of your credit limit. If you want a $500 limit card, for example, a company may want a $500 or even $600 deposit.
- Low credit limits
Many secured credit cards offer limits of $250 or less. If you want one, compare several card offers to get the best credit limit you can get with your credit rating. Otherwise, you may find that your card is not as convenient as you may like.
While many unsecured credit cards charge no fees, most secured cards do have several fees for users. Again, this is because secured cards are often used by people with poor credit histories. When looking for the best secured credit cards, do try to find the one with the lowest fees possible.