In this post, I shall address the question of what is a secured credit card. A secured credit card is different from a regular credit card because you are not actually given credit. But how is this so?

To get a secured credit card, you would need to deposit a balance with the credit card issuer. This amount normally ranges from $200 up to say $15,000. The credit card issuer will then use this as a colleteral and give you a card limit based on the amount of your deposit. Most credit card issuers will allow to charge to your card up to an amount that is equivalent to your deposit amount. You will earn interest on your deposit, but you cannot withdraw it as it acts as the issuers collateral in case you default on your payments.

Who should apply for a credit card?

Secured Credit Cards are meant for those who have bad credit or no credit. For those who have bad credit or have just come out of bankruptcy, then getting a secured credit card is a roadmap back to rebuilding one’s credit. The reason why credit card issuers are willing to issue a secured credit card to those with poor credit is because they have the deposit as a collateral.

If you have no credit, or never had a credit card when you were in college, a secured credit card allows you to start building a credit history.

Secured Credit Cards have lower costs than sub-prime credit cards

One of the main advantage of a secured credit card over a regular sub-prime credit card is that is has lower fees. Most subprime cards charge a one-time application fee, a monthly maintenance fee plus even an annual fee. Most secured credit cards simply have a reasonable annual fee and that’s it.

Things to beware of

1. When you apply for a secured credit card, you have to be aware of a few things. Firstly, you have to make sure the credit card reports to the three main credit bureaus, TransUnion, Experian and Equifax. This is so that you can build or rebuild your credit.

2. You also want to make sure the card pays you an interest on your deposit.

3. You make to have an upgrade path to a regular unsecured credit card with no annual fee. That is why it is very important to get a secured credit card from a major credit card issuer or bank and not a “sub-prime credit card issuer”.

This entry was posted on Friday, November 2nd, 2007 at 3:18 am and is filed under Tutorials. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.