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Applying for a secured credit card is a great option for many people. It can offer a way to keep a budget under control or help to rebuild already damaged credit. There are a few things that are worth knowing when it comes to secured credit cards.
Fact #1 - Spending Your Money
With a secured card you are placing some king of a deposit on the account. Many times the card company will require you to mail in a payment from your personal account to secure the card. Other times a company may bill annual and program fee’s directly to the card account to cover the deposit. One way or another though you are placing personal funds in the hands of the credit card company. The reason it’s important to know this is simple. Anytime you use the card and pay interest on your balance, you are paying the bank interest on your own money! A secured card should only be used as a tool. Don’t go crazy and charge it up.
Fact #2 - Second Chance Cards
Unsecured credit card companies are around primarily for people who have less than perfect credit. They are basically to be used as a tool to help rebuild credit. The credit requirements are generally a lot lower and many of them rely heavily on your employment status when it comes to approval rates.
Fact #3 - Credit Lines
Since a secured credit card uses your money to insure the card will be paid, the credit lines are typically low on them. You can expect an initial credit line of between $200-$500. They may increase the line over time with on time payments and responsible use of the card. On cards that will charge you fee’s initially to set the card up, you can expect the available credit to be around $50 in the beginning. Once you start paying these amounts down, the available credit will increase.
Fact #4 - Interest Rates
With secured credit cards being marketed primarily towards those people who need help establishing or reestablishing their credit you can expect the interest rates to be slightly higher than on an unsecured card. You won’t find many introductory rates on secured cards. You can expect to see interest rates in the 12%-18% range for a secured or second chance credit card.
Fact #5 - Balance Transfers and Cash
Because of how the secured cards are designed, you won’t see many with balance transfer options or cash advance abilities. This isn’t necessarily a bad thing. If you already have a card with a high balance, you would be better off finding an unsecured card with an introductory balance transfer rate to help pay it down. And not having access to cash is a great way to avoid overspending and paying higher interest rates.
5 Secured Credit Card Facts Worth Noting
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