A credit card is a perfect tool for consumers who love to buy now and pay later. So many types of credit cards exist, so it is important for consumers to explore all of the available options before making a decision.
Of course, with certain products designed for consumers of a certain profile, there are obvious choices, and a secured credit card is one.
What is a Secured Credit Card?
A secured credit card is a credit card that requires the cardholder to pay a refundable deposit. This deposit, which is typically equal to the amount of credit, is used as collateral to ensure the account is paid. If the cardholder does not pay the balance due, the deposit will not be refunded and the account will be closed.
If the cardholder exhibits that they can properly manage a credit account and make an on-time payment every month, they may be able to apply for a traditional or an unsecured credit card account and get their deposit refunded for the secured credit card.
Should You Get a Secured Credit Card?
Secured credit cards can benefit any consumer, but it can be especially helpful to consumers with poor or bad credit and consumers with no credit. When people seek credit, they will be expected to have a certain credit score because this score will show lenders and creditors how much of a risk that person is and if they should be approved for credit. Creditors basically see it as the lower score, the higher the risk.
Secured credit cards have two major benefits for consumers:
- Improves credit score: Cardholders will have their monthly payments reported to the credit bureaus, and on-time payments often result in an increased credit score.
- Establishes credit history: A credit account listed on a credit report helps establish a credit history, which is important for people who want to improve their chances of being approved any type of credit in the future.
Over time, consumers can easily build/rebuild their credit and improve their score. Rather than having low odds of approval because they are seen as a risk, consumers will have higher odds of approval in the future when credit is needed, like when they want to purchase a home or even open another credit card account.
How Do I Get a Secured Credit Card?
Consumers interested in a secured credit card need to determine which secured credit card to apply for before they just start filling out applications.
When choosing a secured credit card, consumers should consider:
- Credit limit
- Minimum deposit amount
- Fees( Annual fee, late fee, etc.)
- Interest rate
An application will then need to be filled out. The application will require the applicant to provide personal information about their finances. Following the review of the application, and a credit check, the application will be denied or approved. The process of obtaining a secured credit is similar to the process of obtaining an unsecured credit card, but there is one key difference: the deposit.
If approved, the applicant will then pay the requested deposit amount. As stated above, the deposit will typically be equal to the credit limit. For example, if a cardholder would like a credit limit of $300, their deposit will need to be $300. A higher limit will require a larger deposit from the cardholder.
When trying to decide if a secured credit card is the best option, consumers have a lot to review, but they can’t deny how it will help their credit in the long run. Credit cards can be used to pay bills, buy gas, see a movie and much more, but when someone’s credit score isn’t where it should be, a traditional credit card may not be an option. With a secured credit card, people can gain access to the credit they need and have an efficient tool that will help them build their credit.
Need help finding the right secured credit card or have questions about rebuilding your credit? Call Credit Absolute today to schedule your free financial consultation!