Despite that fact that they require you to make a deposit, secured credit cards are a great way to get a credit card and improve or build your credit rating at the same time. Although they’re fairly straightforward, here are five things you may not know about secured credit cards.
Your deposit does not take the place of making your monthly payments. Many people feel that as long as the bank has their deposit, it won’t matter if they’re late on their payments. If you’re late on your payments, the consequences will be the same: late fees, delinquent account and a black mark on your credit report.
Secured credit cards are not just for consumers with bad credit. Secured credit cards may be used for someone with no credit, an immigrant trying to get his or her first credit card or consumers who just wants to control their spending. In fact, there are many advantages of having a secured credit card, including:
Chance to rebuild your credit score
More buying power as many things require credit cards
Convenient path towards an unsecured credit card
Controlled spending
Ability to earn interest on deposits
Lower fees than unsecured cards
Secured credit cards are not the same as prepaid cards. Many people think these two are the same. With secured credit cards, your deposit stays with the bank until you close the account, depending on their policy. With prepaid cards, you load money onto the card, use the card and add money when you want to use the card again.
Although many may be displeased at the prospect of having a secured credit card, particularly since they have to make a deposit, secured credit cards can actually be a great way to go. You can use this is an opportunity to build a good credit history while also having a savings account that’s earning interest. You may also get your deposit back without closing the account. Some banks may return your deposit to you if you make all your payments on time for a certain length of time.
A common myth is that secured credit cards have a stigma attached. That’s just not true, though. Nobody but you and the bank will know your credit card is secured. In fact, they are used by more than just consumers with bad credit. There are, however, some very real disadvantages of secured credit cards, including:
May come with higher interest rates
Some may have additional fees
Low credit limits
It’s your own money so isn’t really giving you extra credit
Account may be reported as a secured account on your credit report
If you’ve never had a credit card before, you can learn the ins and outs of using credit cards in a responsible way. Knowing that you stand to lose your deposit can also give you an added incentive to watch your spending, make your payments on time and be well on the way to earning the privilege of having an unsecured credit card.
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