|
Credit cards are a part and parcel of life today. They offer
convenience, safety for your money, and a simple and easy
way to establish or repair your credit history. Secured credit
cards have been seen with a negative outlook mostly due to
their high interest rates.
To get credit with a reasonable interest rate you need a
good credit history. With a good credit score the chances
of getting a loan to buy a house or a car are high. Secured
credit cards offer a great opportunity for many people to
establish and clean up their credit history. They are the
stepping stones to regain healthy financial standing.
Today credit scores and credit histories are easily accessible,
and the credit card companies base their decision on whether
to extend credit or not on credit reports. If you're a young
adult who has never taken out a loan or had a credit card
through a parent before, or if you are a divorcee with no
credit card in your name, you probably feel helpless and frustrated
because-"you can't get credit since you've never had
credit". 'Lack of credit history' is a common reason
given for denial of a credit card application.
Secured credit cards offer an easy way for anyone to begin
building credit. Because your credit is 'secured' by your
own money, the credit card issuer knows that on non-payment
of bills they will get their money. By keeping your money
as security they encourage you to make your payments rather
than lose your security deposit.
When you rent an apartment, the landlord may ask you to deposit
money equal to a month's rent as security into a special account.
The landlord returns the full amount with interest when you
move out - if there is no damage to the apartment and you
don't owe him any money.
So how about a credit card with a security deposit.
A secured credit card works on the same principle. 50-150%
of the amount of your credit limit is placed as a security
deposit in a special account with the credit card issuer.
The card company then issues you a credit card which you can
use like a regular credit card. No one but you and the credit
card issuer know that the card is secured by a security deposit.
If you use your secured credit card to make small purchases,
pay the monthly balances on time and in full, the security
deposit isn't touched. You can periodically increase the amount
of credit available to you on that card by depositing additional
security deposit or by acquiring more secured credit cards.
The issuing company will then gradually increase your credit
limit from 50% of your deposit to 75% to 100%.
Secured cards usually carry a high rate of interest. If you've
been rejected by credit card companies you will be considered
a credit risk, and taking the risk factor in account, the
companies charge higher rates to cover their risk. Secured
cards are good for people with low or no credit history but
not for people with an excellent credit rating as they can
get other cards with low interest along with rewards and perks.
Thus secured credit cards enables people with a bad credit
score or no credit history, to build and improve their credit,
which will in turn help them to get better credit deals in
the future.
|
