A Secured Credit Card works like any other credit card but requires a security deposit before use. You pay a security deposit amount to the card-issuing bank or financial institution, typically one or two times the amount of the decided credit limit, and the issuer bank holds this deposit and issues a credit card in return. The purpose of the deposit is to reduce the risk to the issuer bank, making these cards a better and safer option for people with bad credit history. The deposit reduces the risk of being the defaulter for the credit card holder and issuer both. If the cardholder is not able to pay a bill on time, the issuer can yield the money from the deposit. That’s why these cards are best suited for people with bad credit or no credit. Some secured cards also have options to upgrade your account directly to an unsecured Credit Card. At the time of upgrade or closing a Secured Credit Card, the bank refunds the deposit accordingly. The minimum and maximum amount which can be deposited vary by card and banks.
Through online credit card apply one can proceed for the process of getting the approval. Once secured credit card has been approved and you paid your deposit, you may start using your secured credit card. A secured card can be used the same as any unsecured card including making offline purchases, online shopping or over the phone. Although very few businesses may not accept secured credit cards. Most secured credit cards come with a small annual fee or maybe lifetime free depending on the issuing bank’s offer.
These cards can be wisely used to improve or rebuild your credit rating. Before applying for a secured credit card, review the eligibility requirements, fees, and interest rates and terms carefully. In case you are not able to pay off your balance on your secured card in full each month, interest is levied on the remaining balance, just similar to any credit card. The security deposit cannot be utilized to pay off the balance as it is securely deposited with the credit card issuer as security. This Credit Card is also cannot be used as a prepaid card.
Yes, proper usage and timely payment of secured credit cards help to improvise your credit rating. So, if you are paying your bills on time every month, this gives a positive impact on your credit score. This does not matter whether payment is the minimum amount due or full payment. Although this does not happen immediately and the credit score improves over the period.
Remember that a secured card always has a higher annual fee, than that of an unsecured card. The reason is that customer bearing this card is always less creditworthy for the bank. Secured credit cards are most suitable for those customers having an issue in getting approval for a traditional credit card. Improvement in credit history and score with the fair use of the secured credit card can help to qualify for an unsecured card in the future.
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