Secured credit cards are increasing in popularity, and if you’re interested in applying for a credit card, these cards are worth consideration. But before you apply, it is important that you understand how secured credit cards different from other cards.
These credit cards works just like any unsecured credit card. You can buy merchandise with these cards, or use the card to book hotel reservations, airline tickets and the like. However, unlike unsecured credit cards, secured credit cards do require a security deposit.
The bank issuing your card holds the security deposit in an interest-bearing savings account, and if and when the bank decides to convert your secured credit card to an unsecured credit card, this deposit is fully refundable.
Understandably, secured credit cards may not be your first choice. But there are reasons to look into these accounts.
You don’t have a credit history
There is no rule that says you have to have a credit history. Some people purchase everything with cash and they’re perfectly happy with this arrangement. However, having a credit history can make life a bit easier.
A credit history lets you finance a car through a bank and mortgage a house. And with a credit history you can get a credit card, which provides emergency funds when you’re cash-strapped.
Even if you don’t need credit, it doesn’t hurt to establish your credit history – just in case. This is how a secured credit card can help. Submit an application to a bank, pay your security deposit and then use the credit card for small purchases each month.
Pay off your balance in full each month and the card issuer reports positive information to the credit bureaus.
You have a poor credit history
Maybe you’ve had problems with credit in the past and you’re looking to start over. To reestablish your credit history, you have to use credit. Of course, this can be difficult since many banks will not loan you money, and some will not approve your request for an unsecured credit card.
But there is good news. You can get a secured credit card despite your credit history. Because these credit cards require a security deposit, banks are more willing to take a risk with those who have less-than-perfect credit. The security deposit is essentially collateral for the credit card. If you default and stop paying the bank, they simply keep your deposit.
You can’t get an unsecured credit card
If you’ve applied for several unsecured credit cards, only to be turned down by the issuing banks, don’t lose hope.
Because of these rejections, you’re probably not an ideal candidate for an unsecured credit card – at least not at this time. And if you keep applying for these types of credit cards, you may continue to receive rejections. Apply for a secured credit card and you can put an end to rejections.
You’re acceptance is guaranteed
There are basic rules for getting approved for a secured credit card. You must be at least 18-years old, a US citizen, employed and earn the minimum income set by the bank. If you can meet these minimum requirements, you’re guaranteed an approval.