Secured Credit Card
Secured Credit Card FAQs
A secured credit card is a card that requires users to deposit cash to establish a spending limit. The deposited cash becomes the spending limit and the cardholder cannot spend anything more than his deposit. Secured credit cards help people rebuild their credit and work very well for students. Here’s an FAQ that will help you understand how these cards work:
How does a secured credit card work?
Users have to first qualify to get a credit card. Once they qualify, they can start by depositing the minimum security deposit, which is refundable. After depositing the amount, the bank sends over the card with a minimum credit limit. Spends are restricted to the security deposit – for example, the Capital One Secured Credit Card requires a minimum $49 deposit. This deposit allows users to swipe the card for $49 and no more. However, the card gives away a $200 credit line. If the user wants to utilize the full credit limit, he must make an additional deposit of $151.
How does a secured credit card help improve credit score?
The bank reports the card status to the three major credit bureaus (Equifax, Experian and TransUnion). Over time, the user’s credit history starts to improve because he just cannot spend anything more than his deposit. Once he uses up his deposit, he has to refill it if he wants to use the card again.
Is there no way a secure credit card holder is rewarded?
Well, the only reward a secured credit card holder can expect is an increase in his credit limit. Banks raise credit limits that do not require a deposit, but the credit limits are raised based on cardholder’s performance. If he is financially disciplined and his credit report continues to improve, he can expect a small bump up in his credit limit.
How can a user apply for a secured credit card?
Users must not apply for a card unless they compare different cards. Currently, Citi Bank and Capital One are among the most reputed secured credit card issuers and it is recommended that users should stick to reputed names.
What the fees and charges connected to a secured credit card?
All secured cards charge an annual fee, there’s no escaping that. Users must check the fine print carefully as well because they don’t want their credit limits to be cannibalized by fees. They must check if the card requires them to buy an insurance policy with a monthly premium – if it does, they should move on.
Does every bank offer a secured credit card?
The answer is no. Many banks are moving away from secured cards to unsecured credit cards with low credit limits and high APRs.
When does obtaining a secured credit card make sense?
People must opt for such cards when they face a life crisis such as unemployment, divorce, major accident, or a complex medical condition.
What else should user check?
They should ensure that the credit card issuer reports to all the 3 major bureaus. The issuer also must not flag his report to the bureaus – many secured credit card users do this. If your issuer flags his report, your credit score will not move up. You can Check your credit score here completely free if you need.
This is all that users must know about a secured credit card. Once users are armed with such cards, they must ensure that the card is sparingly used. Once they learn financial discipline and after their credit is rebuilt, they can move over to an unsecured card.