Secured credit cards are great for repairing credit and establishing credit history but you have to keep several things in mind when selecting a secured card. Basically a secured credit card holds a deposited amount that is equal or a large part of your credit limit. These are great products if you can get a good one but in the past several years secured cards have gotten to look similar to subprime cvv shop.
Another surprising trend is that some secured credit cards are no longer paying for the customers interest rates, and many are charging higher interest rates and are levying more fees.
If you want to be a savvy secured credit card shopper here are several things that you have to look out for to ensure that you get the best card for your financial circumstance.
Make sure they report your account to the credit bureaus. The main objective of opening a secured card is to establish some sort of credit history, or to help your credit score. Unfortunately some credit issuers don’t report good behavior to the credit bureaus.
Make sure that you ask the credit issuers whether they report your activity to the credit bureaus; you will run into credit issuing companies those only report late or missed payments but don’t report activity when you’ve made your payments on time therefore the card will not build a good credit record for you.
Make sure you get a secured credit card and not a pre-paid debit card that advertises itself as a secured credit card.
Find out if the card has a credit line. Upon approval some secured credit cards will give you a small credit line based on your deposit. For example if you have a $500 deposit, they will give you a small credit line of $250 for a total of $750 to draw upon.
Always ask for a complete fee schedule. Credit issuers can have a whole slew of different charges that they can slap on. There could be a set-up fee, or monthly fees; so make sure you go over those charges, which should be presented to you previous to your opening of your account.
Find out the important dates associated with your account. Some important dates associated with your account are when the bill is sent, when the bill is due and how long before the balance starts accruing interest.
If you don’t know what the dates are you might get yourself in some trouble, for example if you get paid on the 1st but your bill is due on the 28th that’s a conflict that should be resolved before you open your account. Luckily there is some help when it comes to late fees, due to the CARD Act card issuers cannot charge late fees 21 days from when the bill was sent. So if you find out the due date is a problem you can always ask the credit issuer to change the due date.
Some other charges you have to look out for are a card that charges interest as soon as you buy something. Most reasonable credit card will have some sort of interest grace period if you can pay your purchases off in full.
Sometimes a new owner of a secured card will make the mistake of assuming that their deposit is used against their balances. Truth be told the deposit is held like collateral in case you default on your bill. Only when you close the account, and your bills are paid in full will you get your money back. If you have a bad month, they will not use the deposit to make your payments, and most cards will tack on late fees on your account.
What usually works best is getting set up for ACH, or automatic payments that way you don’t forget your bill, depending on your financial situation you can set up the secured credit card to pay the full balance or the minimum.
Find out where your deposit is held, and how fast you get it back. Most people use the secured credit card as something that is temporary. Typically after 12 months of good payments you can establish good credit history.
Once you close the account, you obviously are going to want your deposit back, which is obviously very important, so before you even open your account you’re going to want to know where your money is, and how fast you’re going to receive it.
You’re also going to want find out all the caveats that are associated with your secured card. Make sure you ask what happens if the credit issuer goes out of business and what your recourses are.
Research the credit card issuer. When shopping with a credit card issuer makes sure you have done your due diligence and find out everything you can about the financial institution. With the advent of social media and the internet you can find a plethora of reviews online. Find out what the consumers have been saying about the secured credit card, and choose the best secured credit card based on your trust level with that institution.
Do you have the will power to use the card properly? A secured credit card should be used as a vehicle to get to a good credit rating. It’s normally used for people with no credit or need to repair and re-build their credit history. Once you’ve opened the account you should only use it for small purchases and the balance should be paid off immediately.
These secured cards tend to have higher interest rates so you should really keep an eye on the purchases you make and keep tight reigns on your balances.
Secured cards do not work the same. If you are interested in applying for a secured credit card, you have to do some research to ensure the card you choose is right for your financial situation. The most important step to finding the right secured card is to ensure the credit card provider will report your activity to the credit bureaus. Not all providers will and if you use an unsecured credit card that does not help to improve your credit, your efforts have been wasted.
You also need to pay close attention to the fees and costs of the secured credit card. You may find that you may pay a higher fee for a secured card than for a traditional non-secured card. These higher rates may be something you cannot afford. Many providers institute these fees because without a credit history you are a risky proposition to their bottom line.
Interest rates should be considered. You may be depositing $300 into the card account but will be charged interest for your purchases and card use. Your initial deposit may not stretch as far as you would like.
Benefits of a Secured Card
As long as the terms and conditions of the card are suitable to your financial situation, a secured credit card can help you boost a low credit score or establish credit if you lacked it in the past. You can utilize the secured card for a period of time as you get more established and often can transition to an unsecured card for later use.
The benefits of a secured credit card rely on you making timely payments and following the agreement set forth by the card provider. It can be easy to hurt your credit by using the card improperly such as making payments late or defaulting on the card altogether. You have to ensure you do not charge over your spending limit as you can hurt your credit and start a vicious cycle of debt you find it hard to get out from under.
