What is a 'Secured Credit Card'?
If you have a poor credit rating, for whatever reason, you are likely find it difficult to obtain a credit card. That's where secure credit cards come in.
Secure credit cards require a cash collateral deposit. Unlike a traditional credit account, where the provider allows you spend up to a certain limit of their funds each month, secured credit cards require you to input some of the money yourself. Confused? Here's how it works.
Under a secure credit card arrangement, the debtor - that's you - places funds on deposit with the bank or financial institution providing the card.
The lender then allows you to make credit card purchases, up to a value of 90%-150% of the amount you've placed on deposit. That percentage depends upon your individual circumstances and your arrangement with the bank. For example, if you're arrangement allows 120% credit, and you have placed 500 on deposit, you have access to 600 on your credit card.
While secure credit cards are often the only choice available to consumers with a bad credit history, they're also often the only option for those who are new to credit, such as university students and teenagers. Without a credit history, banks can be nervous about extending even small-scale credit facilities to you.
Therefore, one of the purposes that secure credit cards have is to allow people with bad or non-existent credit histories to use a credit card, and establish a fresh method of repayment and spending habits. As a result, the bank feels that the risk of approving a poor-credit customer is evened out, as they have a cash deposit on file, which can be accessed to repay the credit card debt if needs be.
Normally, its frowned upon to withdraw the deposit while you have a secured credit card account. Interest will be accrued on the account - generally, the interest rate is equivalent with what would be earned on an ordinary savings account with a bank - but you'll have to discuss with your lender about specific rules regarding withdrawing and adding from the savings account. You should also inquire as to how long your money is required to remain on deposit once the account is closed, as some lenders may decide to hold the deposit for an additional month or two, to compensate for any late transactions and charges.
There are many lenders on the market who are willing and able to offer secure credit cards, but it absolutely pays to shop around. Charges, fees and restrictions vary dramatically, including interest rates, annual fees, mandatory card insurance costs and application fees, so don't forget to read the fine print! - 16931
Secure credit cards require a cash collateral deposit. Unlike a traditional credit account, where the provider allows you spend up to a certain limit of their funds each month, secured credit cards require you to input some of the money yourself. Confused? Here's how it works.
Under a secure credit card arrangement, the debtor - that's you - places funds on deposit with the bank or financial institution providing the card.
The lender then allows you to make credit card purchases, up to a value of 90%-150% of the amount you've placed on deposit. That percentage depends upon your individual circumstances and your arrangement with the bank. For example, if you're arrangement allows 120% credit, and you have placed 500 on deposit, you have access to 600 on your credit card.
While secure credit cards are often the only choice available to consumers with a bad credit history, they're also often the only option for those who are new to credit, such as university students and teenagers. Without a credit history, banks can be nervous about extending even small-scale credit facilities to you.
Therefore, one of the purposes that secure credit cards have is to allow people with bad or non-existent credit histories to use a credit card, and establish a fresh method of repayment and spending habits. As a result, the bank feels that the risk of approving a poor-credit customer is evened out, as they have a cash deposit on file, which can be accessed to repay the credit card debt if needs be.
Normally, its frowned upon to withdraw the deposit while you have a secured credit card account. Interest will be accrued on the account - generally, the interest rate is equivalent with what would be earned on an ordinary savings account with a bank - but you'll have to discuss with your lender about specific rules regarding withdrawing and adding from the savings account. You should also inquire as to how long your money is required to remain on deposit once the account is closed, as some lenders may decide to hold the deposit for an additional month or two, to compensate for any late transactions and charges.
There are many lenders on the market who are willing and able to offer secure credit cards, but it absolutely pays to shop around. Charges, fees and restrictions vary dramatically, including interest rates, annual fees, mandatory card insurance costs and application fees, so don't forget to read the fine print! - 16931
About the Author:
Peter Carville is a freelance article writer who writes for Financial Facts about the current financial news and the credit crunch.
posted by Edgar at
00:29
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