Do you have poor or no credit? Are you trying to rebuild your credit? Have you declared bankruptcy? These are all things that happen in life and sometimes it can be hard to get your feet back on the ground if you can’t qualify for a credit card. This is where a secured credit card can come into play. Secured credit cards work by how much money you deposit into an account which is linked to the bank. You will give the lender a certain amount of money (between $300 and $10,000) and they deposit it into an account. You pay your bill every month just like you would on a regular credit card but it is “secured” with the money you have deposited into your account. This can help you build or rebuild your credit so that hopefully in the future you will qualify for an unsecured credit card. Should you fail to make the payments on your card, the bank takes the money out of the “secured” deposited money. It can sometimes sound too good to be true, so here’s what you should know about secured credit cards before you run out and get one.
A secured credit card works exactly the same way as a regular credit card in that you still have to make payments every month and more importantly it should be paid in full every month. Just like a regular credit card has fees associated with it if you pay late, so does this one so you will do well to remember to pay your bill on time. A late payment can reflect on your credit score which can hurt your chances of qualifying for an unsecured credit card further down the line. Do yourself a favor and pay the balance off each month.
Just like any other credit card, a secured credit card will have fees. Probably the worst part about a secured credit card is that it will almost always have an annual fee. Holding a secured credit card also usually means that you have to have a checking or savings account with the bank that is issuing the card. Along with annual fees you may also incur higher interest rates and high application fees.
Although you might hear that you can qualify for a secured credit card if you’ve declared bankruptcy, have poor credit, or even no credit, there are still eligibility requirements for most of them. How much money you make a year is one thing that banks take into consideration if you’re applying for a secured credit card. And age restrictions also play a role in applying for a secured credit card. Even though it’s your money you’re putting down for the deposit and they have less risk, card companies will still usually have certain requirements they want met.
One of the greatest advantages to having a secured credit card is that the credit bureau has no way of knowing if it’s secured or unsecured. So as long as you’re making your payments on time every month your credit score will go up. Make sure if you’re trying to rebuild your credit standing that it is getting reported every month without the knowledge of it being a secured credit card. And remember, if you pay late on your card that will also show on your credit score.
So if you’re thinking about getting one, most of what you should know about secured credit cards is right here. Make sure you talk with your bank and ask all the questions you have before you decided you need one.