Secured Credit Cards - A Safe Way To Establish Credit
Secured credit cards are designed to assist people who have
never had credit or those who have bad credit, in order to
enable them to establish a good credit rating.
Typically, secured credit cards are issued when the holder
is able to offer a type of "security" deposit to the lender
by depositing a pre-arranged amount of money into a savings
account, money market or certificate of deposit. This is
how it works: Usually, for a small fee, the lender will
allow the cardholder to utilize the credit card within the
specified parameters. Unlike using the cash for any
purchases, the secured card creates a credit history for
the holder, thus contributing to their overall credit
rating.
With a secured credit card, it is imperative that you make
full payments each and every month; otherwise interest is
charged on the outstanding balance. If you default, the
lender will use the amount in the security account to pay
off the debt and this can result in more damage to your
credit rating.
As with any other financial undertaking, it is important
that you read the fine print so you are totally aware of
exactly what you are paying for. There are some pretty
unscrupulous predators out there whose primary goal is
separating you, the consumer, from your money. For this
reason, you should pay particular attention to the fee
schedule prior to accepting any offers for credit cards. Of
course, no-fee credit cards are best, but most often the
lender will require a small one-time activation fee, which
can typically range from $25 to $30.
The onus is on the user to be vigilant when obtaining
credit, so it is your responsibility to make sure there are
no hidden fees. Special care must be taken when the
contract contains clauses outlining registration charges
and/or set-up fees. In some cases, the cost of the card can
quickly exceed your credit limit, thus only adding to your
credit woes.
With a secured credit card, you will of course pay a higher
than average interest rate, however, this does not mean
that the interest charge is outlandish. Many secured cards
offer competitive rates under 19% and again, this is where
diligent research on the part of the user becomes
paramount. You should be cognizant of all grace periods,
the penalty for late payments and the fees charged should
full payment not be made within the proscribed time frame.
Once you show due diligence over the specified time frame
(most lenders like to see a history of six months to one
year of responsible credit card use), the creditor may
offer to double the amount of credit available to you, with
a portion of this fixed amount being unsecured. Should you
choose to close out the account, however, the unsecured
funds must be returned to the lender.
The cardholder should ensure that the creditor regularly
informs credit-reporting agencies of their payment history.
Once it can be established that you are using credit
reliably and sensibly, your credit score will increase and
you will then be eligible to apply for an unsecured credit
card.
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Liz Roberts is a loan consultant with NHBS Inc. offering
helpful advice on repairing bad credit. Visit our site
online for a secured credit card
