Credit card companies are eager to hand out their cards. But they won’t give them to just anyone. If you have a poor credit history, or if you have never had any credit in your name, chances are you’ll be left out in the cold when it comes to regular credit cards.
But those with credit issues aren’t doomed to go through life without the ability to “charge it.” Secured credit cards are available to almost anyone. They are, however, quite different from your average credit card. Characteristics include:
* Secured credit cards require cardholders to make a cash deposit as collateral. This money may simply be held by the company, or it may go into an interest-bearing savings account. Your credit limit is generally the same as your deposit, although it may be a little more or less. If you fail to repay, the balance is deducted from your deposit.
* Applicants for secured credit cards often have to pay high fees. There is almost always an application fee, and there’s usually an annual fee. Some companies also require cardholders to purchase insurance.
* Interest rates for secured credit cards are usually higher than those for unsecured ones. This is because the creditor is taking on a greater risk by providing credit to someone with a poor or non-existent credit history.
* There are often rewards for a good payment history. You may receive a higher credit limit with no additional deposit, or you may even be offered an unsecured card.
Secured credit cards offer a number of advantages. One of the most important is the opportunity to build a good credit history. If you have bad credit or no credit, getting a loan or a regular credit card is next to impossible. By using a secured credit card and making your payments on schedule, you can increase your chances of getting other types of credit in the future.
Another good thing about secured credit cards is the convenience they offer. They keep you from having to carry large amounts of cash, and if they’re lost or stolen, you lose little, if any, money. They also make it easier to do things like shopping online and making travel reservations.
It’s important to be cautious when applying for secured credit cards. Some companies use the promise of a secured credit card to scam unsuspecting consumers who need to rebuild their credit. They often charge outrageous fees, and they may require applicants to call 900 numbers that result in additional charges on their phone bills. Be wary of any company that guarantees acceptance or charges exorbitant fees, and check with the FTC or Better Business Bureau if you are in doubt.
A secured credit card can help those who cannot otherwise obtain credit enjoy the advantages of a credit card while building up a positive credit history. But just like any credit card, it is important to use it responsibly. If you don’t, you could lose part or all of your deposit, and your credit report could end up in even worse shape than before.