What is a Secured Card?
Secured cards are a form of credit cards but are different because they require a cash collateral deposit which becomes the credit line for the card. For instance, if you give a $1,000 deposit, then you can charge up to $1,000 on the card. Some banks often reward users of secured cards by giving a bigger credit amount based on good payment.
Not all banks offer secured cards and not everyone can get secured cards. These types of card are for people who are just starting out and have not built any credit history yet. These cards are also great for people who are in the process of rebuilding their credit history due to divorce, a serious illness, or loss of a job.
Where Can I Get a Secured Card?
Since not all banks offer secured cards, the best way to look for these cards would be through a credit union. Getting the card this way also has its advantages because you may get lower interest rates and waived annual fees.
Things to Know about Secured Cards
Before jumping into the first bank o offer you a secured card, shop around first and see what the deals are. Some secured cards require an application fee, and some have very high annual fees compared to others. So do some shopping before signing up.
Some secured cards also require a deposit anywhere from $300 – $500 and some may require even higher than that. Look for a card provider that can give a credit line that is a bit higher than the deposit required but doesn’t charge a high interest rate.
Watch out for those credit card companies that tend to abuse the current credit situation of their customers by making them sign up for insurance policies that need to be paid for monthly before the card is issued. Watch out for these kinds of traps.
Also, before getting secured cards, ask if the bank behind it files reports to credit bureaus. Getting this card and paying it on time monthly is a great way to build or rebuild credit history, and of the bank doesn’t report to credit bureaus, then that’s your loss. You’ll know if the bank is filing reports when you get offers in the mail for unsecured credit cards after a few months of paying your card on time.
Since most banks would love to retain a good paying customer, expect for an offer for an unsecured credit card from the same bank that gave you secured cards in about a year. Just keep paying the bill on time each month and expect offers for unsecured credit cards to come pouring in.
To make the most out of secured cards in relation to credit building, buy a few items each month and pay the bill in full when it comes. Don’t pay the minimum amount due, pay the entire bill off. In this way, our capacity to pay will show as very high when the bank reports your financial activities with them to the major credit bureaus.
