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Secured
Credit Cards
If you have bad credit or no credit at all, it can be very hard to obtain
an unsecured credit card. You may qualify for a secured credit card. “Secured”
means the card issuer requires you to make a deposit into a special savings
account to collateralize the credit line. Therefore, secured credit card
issuers will approve the majority of applicants. A secured credit card can
offer many of the same benefits as an unsecured credit card.
Candidates for Secured Credit Cards
- Secured
Credit Cards are ideal for consumers who are establishing credit. If
you have never had any type of credit (credit cards, car loans, etc..)
it is very difficult to qualify for an unsecured line of credit.
- Students,
divorcees, widows and immigrants are often denied for credit for “no
credit history” or “insufficient credit history”.
- Consumers
with previous credit problems are often denied credit.
- Many
secured bank credit card issuers will consider your application, even
if your credit history shows liens, charge-offs, repossessions, or a
discharged bankruptcy (as long as the problems are under control and
in the past).
- Secured
credit cards offer the opportunity to build a meaningful credit history
that future lenders can rely upon.
- Establishing
a good payment history with a secured credit card, over a period of
time, could open up many other credit options for you.
- Demonstrating
responsible use and the ability to make payments on time can give you
another chance in the credit world.
Finding The Best Secured Credit Card For You
First, decide what features are most important to you:
• application fees
• annual fees
• finance charges
• accrued interest on the deposit
• available line of credit
• minimum savings deposit
Once you have been accepted for the credit card, you are required to make
a deposit into a special savings account. The minimum deposit required can
range from $100 - $500.
Secured credit cards provide the same charging privileges as an unsecured
credit card.
There are no visible differences between a secured and unsecured credit
card (only you and the credit card issuer will know)
Interest rates and annual fees may be higher on a secured card.
Re-Establishing Credit With a Secured Credit Card
- It is
a good idea to carry a balance on your secured credit card for at least
several months - Carrying a balance and making regular consistent monthly
payments will show your ability to use credit properly
- Do not
go over your credit limit
- Do not
make late payments
- Do not
pay with a bad check
- Try to
pay a little more than the minimum payment each month
Savings Deposit
Some issuers will accept applicants with a deposit as low as $100, but most
require a $300-$500 deposit. This should help you contain your debt to a
healthy level.
Consumers with unsecured debt (not including automobile or home loans) exceeding
20% of their annual gross income are considered ‘risky’ by most
lenders.
- Do not
confuse secured credit cards with the newer debit or check cards. Debit
cards directly access or debit a designated checking or savings account.
- The funds
that you deposit with a secured credit card bank are not touched unless
you default on the credit card account.
- In most
cases, your deposit will accrue interest.
- Most secured
card issuers will review your payment record at the end of the first
full year.
- Some issuers
will return your savings deposit and turn your secured account into
a regular unsecured account.
- Some issuers
will raise your credit limit.
- With some
banks you may have to request the increase of your limit.
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