Understanding Secured Credit Card

By Leni Parrish on March 11, 2010

A secured credit card they say is the answer for those who have no credit history at all or for those whose credit rating is not too great. A secured credit card is provided for those who can afford to put in a cash collateral deposit that will serve as the credit line. Some banks even offer a percentage atop that amount as a limit. You as the card holder may charge up to the amount of your collateral deposit and you may also have an option to increase credit line. The collateral deposit may vary among banks – usually between $300 and $500 in deposits. There are times when you are awarded with additional credit line without depositing more to your collateral. This happens especially when you pay your dues on time and have your accounts updated always. There are some financial institutions that do not charge on application fees anymore so you might want to do your research first before signing-up with one company. You might also want to compare annual fees beforehand because come banks charge astronomical fees, and you certainly do not need that additional expense.

A secured credit card is a product that is not offered by all banks. Trends show that these financial institutions are already steering towards offering non-secured plastics that have lesser limits but higher interest rates and fees. When you are just starting out though, experts still advise that going secured is the best option. If you are one who wants to rebuild credit, though, this product is not for you if you have already blew your chances when you mismanaged your accounts.

The purpose of a secured credit card is clearly defeated when your bank provider does not report your card activities to the major credit bureaus. A sign that you are reported faithfully is when you suddenly receive offer to apply for an unsecured account after having been really religious in paying off your secured one. Banks automatically qualifies an individual for an unsecured regular card in about a year of handling the secured account well.

Putting money in the bank as deposit collateral also earns interest the same way you earn with savings account. Not bad for a requirement, right? But you must also make it clear with the bank about the terms by which the amount must be kept in the bank. For some, they require that you keep the money deposited until after a certain period of time upon closure of account or until charges are cleared. You also would not choose to keep this kind of card because it usually charges more for interests.

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