Jun02
Facts about Secured Credit Cards
Credit cards are a convenience that many Americans have come to appreciate. However, given the financial crisis and the looming recession, many once credit-worthy Americans are now struggling to re-build their credit after difficult financial times sidelined their credit score and their ability to obtain credit.
For those of us who are struggling with our credit worthiness, secured credit cards may be the answer. It is important, however, to educate ourselves on both the advantages and disadvantages of secured credit cards before applying for one.
How Secured Credit Cards Work
A secured credit card is essentially a credit card with a security deposit. The credit card works in a similar manner to a traditional credit card; however, the credit card holder must first deposit money into a special account that is equal to 50 to 150 percent of the card’s credit limit.
The credit card holder then uses the credit card as he or she would any standard credit card, and pays the bill in a similar fashion. The only difference is that the creditor has a cash reserve to pay the credit card should the cardholder default.
As the cardholder continues to pay the card every month and make responsible purchases, the creditor may raise his or her credit limit. For cardholders seeking a higher credit limit, the creditor simply requests a larger security deposit.
Establish and Spruce up your Credit Rating
For those consumers with little or no credit, or for those with a poor credit history, a secured credit card may be the ideal solution for rebuilding credit. A secured credit card provides consumers with the opportunity to show creditors that they are working towards a more financially sound future.
A secured credit card enables anyone of legal age to establish a credit history; therefore, they are ideal for young adults who have no credit history. Others who may find secured credit cards to be useful are those in bankruptcy or those who have had their bankruptcy recently discharged.
Establishing a credit history with a secured credit card may very well be a responsible step towards a better financial position.
Disadvantages to Secured Credit Cards
While there are few disadvantages, it is important to remember that secured credit cards typically carry a high interest rate, although for many consumers with poor or no credit, this is often an accepted trade-off.
