How Does a Secured Credit Card Work ?


Almost everyone has a credit card these days. In fact, it is very difficult to get through life without a credit card because so many things require that you have one. However, many people see credit cards as merely a way to make purchases for things that they cannot afford to pay for in full at the time of purchase. Ideally, a credit card should be viewed as a way to build credit and to prove that you will pay off your debts. Doing so allows you to build credit effectively and it can have a dramatic impact on your credit score. If you have experienced problems with debt in the past, you may be able to start rebuilding your credit, and thus repair your credit score, by using a secured credit card.


A secured credit card is a card that you use to make purchases when you have already put a certain amount of money on the card in order to cover the debt. In other words, you are putting money on the card as collateral to guarantee that purchases will be paid for it even if you fail to make your monthly payments. Think of it in much the same way that a secured loan is granted. It requires collateral, while an unsecured loan requires only a signature. It is basically the same thing for a secured credit card, except you are precharged  the card with money before you ever use it.

© Oleksiy Mark -
© Oleksiy Mark –

You can get a secured credit card at some banks and at a number of credit unions. Your best option is to go online and research all of the various companies that offer secured credit cards before you make any decisions. If you are a member of a credit union it is probably a good idea to look at those options first. In addition, you should always use caution when applying for any credit card, including those that are secured. Carefully investigate the individual company that you plan to apply with before you hand over your personal information. Ensure that they have favorable ratings from other customers so that you know you are doing business with a reputable company.


As is the case with most credit cards, secured cards also come with their own special fees that must be addressed. Some charge an application fee, but you can find secure credit cards that do not charge these types of fees. Most of them charge an annual fee, as do many unsecured cards. However, you should be cautious of those which charge extremely high annual fees. Otherwise, you may find yourself spending almost all of the money that you have preloaded the card with on fees as opposed to making purchases which will build your credit. Speaking of preloading the card, expect to make a deposit of at least $300 in order to get a secured credit card. Some companies require that you make a deposit of at least $500 in order to get a card of this type.


Generally speaking, you can build your credit effectively by using a secured credit card, especially when you prove that you are able to make your payments on time. This is a good option for people that have had credit issues in the past and are looking to rebuild their credit score in order to get unsecured credit cards or even apply for a mortgage or a car loan in the future. You should expect to have an unsecured credit card for approximately one year before you can qualify for an unsecured card. If you have a card with a good company, they will typically offer you an unsecured card automatically after this period of time if you have proven to make your payments on time.


For the most part, people prefer to have an unsecured credit card because they want to be able to make purchases without having to deposit money onto the card before they can use it. However, that may not be an option for people that have credit problems. If that is the case, having one or two secured credit cards may be the ideal way to get you back on track and allow you to start repairing your credit history so that you can qualify for better offers later on.


The most important thing to remember is that you should use caution when applying for a secured credit card just as you would use caution when applying for any other line of credit. You should never give any company your personal information or your financial information without carefully investigating the company first.


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