Secured credit cards are meant for people who do not have any credit or for those with bad credit and looking for means of improving credit rating.
To get a secured credit card, the applicant should be able to provide security deposit to the lender in the form of a pre-determined sum of money into a savings account, money market or certificate of deposit. The lender will permit the cardholder to use the credit card within the pre-agreed terms by charging a small fee. It allows the cardholder to establish a credit history and thus adds to their total credit rating.
You must pay the entire balance on the secured credit card, failing which you will be levied interest on the unpaid balance. In case of default, the lender will repay the debt with your security deposit and this can harm your credit rating further.
Like any financial obligation, read the terms and conditions carefully to understand the items for which you are charged. There are many unethical companies in the market whose main aim is to grab your money. Read the fee schedule before agreeing to any offers for credit cards. Though no-fee credit cards are ideal, most lenders charge a small one-time activation fee, which is generally $25-$30.
It is the responsibility of the cardholder to be alert while getting credit card, so it is better to check there are no hidden fees. Take extra care if the contract mentions registration charges and/or set-up fees. In few cases, the cost of taking the card can be much more than your credit limit, thus increasing your burden.
A secured credit card has interest rate that is more than the normal one, but it is not exorbitant. Most secured cards have competitive rates below 19%. Hence it is important for you to do through research. Take note of grace periods, the fines for late payments and the fees charged if the entire balance is not paid off within the specified time frame.
After you have managed to show meticulousness over the specified time frame of 6-12 months, the lender can double your credit limit, with a certain part of this amount being unsecured. But if you opt to close the account, the unsecured amount must be given back to the lender.
The cardholder should be vigilant in contacting the creditor frequently and ensuring that they inform the cardholder’s payment history to the credit-reporting agencies. Once you prove that you can use credit reliably and judiciously, your credit score will improve and will qualify you for an unsecured credit card.