Problem With Credit: Do Not fall into Secured Credit Card Trap |
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Secured credit cards are usually sold to people who have problem credit and can't get a regular unsecured card. If you have problem with credit or no credit history, credit card ads may sound like an answer to all your dreams. Unfortunately, for many people having problems with credit, these offers turn into a nightmare.
If you have problems with credit and want to apply for a secured credit card, you need to provide a security deposit to borrow money on credit. You should maintain a savings account at the bank that issues the card. Your credit limit on this card is the amount of the money you deposit or a percentage of that amount. The savings account secures the credit card debt in the same way that a home secures a mortgage. If you suffer from a bad credit rating or a problem with credit whether it be through misfortune or just irresponsible spending then secured credit cards can offer you a good way to ease the situation. Secure credit cards give you a useful set of parameters and limitations and over time can help re-establish and improve your credit rating, leading to the possibility of unsecured credit cards. If you are having problems with credit you can take the advantage of a secured card. No one, except for you and the bank, knows that your credit card is secured. Also, most people are approved because repayment is virtually assured and the risk is minimal. After a year or two of consistently making the payments on time, your account can be switched to an unsecured credit card and you get access to the money in your savings account again. But secured credit cards are not a very good companion always. The disadvantage of a secured credit cards is that if you default on the balance, the bank keeps the money in your account and cancels the card. Moreover, the interest rate on a secured credit card is higher than any regular credit card. Also, some issuers charge exorbitant application and processing fees. It is important to find out what these fees and interest rates are, and if the application is declined whether the fees would be refunded. If you consider a secured credit card because of problem credit or any other reason, there are a few important considerations to keep in mind. What requires the most attention is the fee involved with any secured credit cards. It is worthwhile sticking to the larger credit card suppliers, as they tend to offer the most reasonable fees. Cards involving no fee are ideal but most have a small annual fee. Watch out for card issuers that incur all sorts of hidden charges as these can do more damage than good. As with any financial undertaking it is very important that you check all of the fine print. Secured credit cards can be a very nice thing for creditors because they are closely controlled and there is no real risk factor for the creditors. Moreover, when you apply for one due to problem with credit, the amount of money deposited must be maintained so that if you fail to make the payment, the creditor has insurance of being paid. But remember, the amount that you have to place into the account is quite high, averaging from $300 to $1,000 or more. Building a good credit rating takes time and it takes more time if you are having problem with credit. There are no shortcuts, even though a reputable secured card can be a valuable tool in getting there. Make sure the card issuer reports to all the major credit bureaus. Otherwise, all of your endeavor may result only in futility. |
