Secured Credit Cards

Secured credit cards are a good choice for consumers who have bad credit or no credit and need to extend their credit lines. There are many reasons why a person may have poor credit or even a lack of a credit, including loss of a job, divorce or recovering from financial ruin. There are many situations in which a consumer may appear to be too great of a credit risk to be approved for an unsecured or traditional credit card. A secured credit card is a way that consumers can begin to improve their credit with a card that reduces the risk that lenders face.

Secured credit cards require the consumer to put a minimum cash deposit on the card. This serves as collateral and works to appease the lender in case the consumer defaults on payments. When a consumer opens a secured credit card the limit is set by the deposit placed on the card. It’s important to understand that secured credit cards are different from prepaid cards as well as debit cards. In many ways, secured credit cards are similar to traditional credit cards.

Secured credit cards are not the same and you should take the time to research and compare various cards to ensure you get the best deal. One of the most important factors to consider when choosing secured credit cards is the annual percentage rate, also known as APR. It is required by law for lenders to disclose the APR on credit cards and you’ll find that secured credit cards have a much higher APR then traditional credit cards do. Though the APR with secured credit cards are higher than those of traditional cards, this shouldn’t be a reason to forego secure credit cards as these are a vital way to improve your credit and will help you make the transition from secured credit card to traditional cards.

When comparing secured credit cards, make sure to take into consideration the annual fee associated with each card as this changes from one card issuer to another. Some annual card fees can be quite expensive while other card issuers’ fees are lower or even waived. There are various benefits to secured credit cards and it is best to understand these pros and cons so you may make the best informed decision.

One of the major benefits to using secured credit cards is that the card issuer will make regular reports on your account to the three major credit bureaus. Debit cards and prepaid credit cards do not report. Even though your spending limit is based upon the amount that you put into your account as your deposit, those who use secured credit cards responsibly can rebuild their credit. Those who have a secured credit card must do everything within their power to pay all fees on time. Defaulting on your payments can have a negative impact as those marks will show up on your credit report. Always pay your bills on time as this is one of the most important steps you can take to ensuring your credit is good.

Though there are several benefits to using secured credit cards they have several drawbacks as well. Due to the initial deposit, those who wish to obtain a secured credit card must have money upfront to put down on the card. This amount varies and some may find that it is simpler to put that money into the debt owed, therefore making yourself more credit worthy for a traditional card.

Additionally, secured credit cards tend to cost more than traditional cards as these cards have a number of different fees associated with them. These include annual fees as well as application and processing fees. Secured credit cards also have higher interest rates than traditional cards. Those who can’t obtain a traditional card may find that secured credit cards are the best way to repair, rebuild and restore their credit.

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