Qualifying and obtaining excellent credit can take years to do. Today many people don’t have years to obtain good credit and are finding themselves out in the cold when it comes to getting any kind of credit card. It would be nice if we never had to use credit cards for anything, but the reality of it is that you need a credit card for many things today; hotels, car rentals, airlines, etc. And these are just a few of the several things that require a credit card upon approval of services. If this sounds like you, then try considering a secured credit card. They’re great if you have never had credit, or have bad credit and might be the only way to improve your credit standing. They can also be given to families who have the money to put on them but don’t want the hassels of the traditional credit cards. Here’s a look at secured credit cards 101; everything you need to know.
What is a secured credit card and how does it work?
The first and most important question in credit card searching; what exactly is a secured credit card. Many people hear about them, but go into getting them blindly. A secured credit card is one that is purchased by you with a secured deposit. The money is taken out a bank account from the purchaser. The amount of money you put on the card is your secured credit card balance. Individuals can put anywhere from $300 to $10,000 on their cards. The best idea is to have a minimum of $1000 so that when the credit report is sent to the credit bureau your credit score will show a significant increase (assuming you pay off your balance at the end of the month). Keeping the balance at zero is the best way to achieve excellent credit or to rebuild your poor credit scores.
Fees and Costs
Like many traditional credit cards, secured credit cards will also have fees. With that in mind however, the advantage to having a secured credit card is that the fees are lower than the regular sub-prime credit cards. With most sub-prime credit cards there is a one time application fee and with secured credit cards there is usually just one annual fee. Depending on the bank you are with though, there may be other fees for processing and such. Check before you decide it’s right for you.
Credit Bureaus
One of the greatest advantages of having a secured credit card is that credit bureaus cannot usually distinguish between them and a traditional credit card. So if you’re making your payments on time and consistently your credit score is definitely going to see an increase. Make sure when you sign up for the secured credit card that you let your banker know that you want your payments to be reported to the major credit bureaus. Obviously, if you don’t report your payments it does nothing to help your credit standing. And make sure that your card is reported in a manner that doesn’t compromise that it is a secured credit card.
Things to watch out for
The first thing to look out for is to make sure that your secured credit card pays you interest on your deposit. You have to make this very clear when you are discussing this with your banker as some of them will not put your money into something that does this. A CD would be a good example of something that generates interest.
The second thing you want to look for is making sure you get your card from a bank and not a sub-prime credit card issuer. You might want to upgrade your secured credit card to an unsecured credit card with no annual fee eventually and a bank can do this for you; a sub-prime credit card company can not.
Hopefully these tips for secured credit cards 101 helps you in your search for the right line of credit you need.
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