Everything You Need to Know About a Secured Credit Card

What can you do when the traditional credit card lender is unwilling or unable to give you an unsecured line of credit? For many people, the answer is to apply for a secured credit card. Secured cards offer the same advantages as a traditional line of credit, but are geared towards those who need to either rebuild their credit or establish a credit profile for the first time. If you already have unsecured line of credit, then you don’t need a secured card. This credit option only for those who need credit, but won’t be approved for a traditional form credit.

Secured Credit Cards Require a Deposit

The reason why these credit cards are called “secured” is because as a customer, you are guaranteeing the balance on the card with an upfront deposit. Depending on credit profile, you may be required to pay a 100% deposit in relation the amount of credit that you will receive. This means that if you wanted a $500 line of credit on your new credit card, the lender would require you to pay a $500 deposit.

If you have no credit history and a stable income, or your credit score is poor, but not terrible, then the credit card lender may prove you for a secured credit card that only needs a partial deposit. Using the example above, instead of paying a $500 deposit, you may be asked to pay a $200 deposit. Once you make payment, you would then receive your $500 line of credit.

All secured credit cards require a deposit from the customer before they can be used.

How Does a Secured Credit Card Improved a Credit Score?

The advantage of using a secured credit card is that you can begin to establish or reestablish a payment profile. The biggest factor that influences your overall credit score is your payment history. If you make on time payments consistently, then you will raise your credit score consistently as well. When applying for a secured card, it is important to make sure that the provider of that card will report your payment history to the major credit reporting bureaus. Without this reporting, you cannot establish or repair a credit history.

Many secured credit cards transition to an unsecured line of credit in12-24 months when a good repayment history has been established. If your lender decides to do this, then the deposit you initially made to get the secured credit card will be refunded to you. The refund process generally takes 60 to 90 days to complete.

Secured credit cards are not a permanent solution. They should be treated as one step toward an overall goal of establishing good credit. Because they often have higher interest rates, customers should strive for these credit cards to a more traditional form of credit as soon as possible. A secured credit card can be a useful repair tool and it can help create a positive credit profile, but only when used appropriately. If you are sure that you’ll be able to make every payment for the next 12 months, then consider applying for a secured credit card today.


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