Secured Credit Cards Explained...

When searching for a credit card you will likely come across several credit card terms. Among them are the terms "unsecured credit cards" and "secured credit cards." Here’s the difference:

A secured credit card is a credit card that is attached to your savings account. The funds in your savings account may be taken by the credit card company if you are unable to make payments. In most cases your creditor will require 100% to 200% of your credit card limit. This means if you put $500 down on a credit card, you will be issued $250 to $500 in credit.

This arrangement allows the credit card company to issue credit to people with bad credit or no credit. This type of account is excellent for people with bad credit who are looking to repair their credit rating, for students who are beginning to build credit, or for people who just don’t want the risk or temptation of an unsecured credit card.

What are the benefits of a secured credit card?

• They are an excellent tool for rebuilding credit.
• You’ll never get in over your head because they’re generally limited to a small credit amount and it won’t be more than you have in your savings account.
• When you get a secured credit card, the information is sent to credit reporting agencies and your credit rating may instantly go up.
• Prepaid credit cards simply won’t let you go beyond your ability to spend. They won’t let you break your budget.

So what is an unsecured credit card?

Unsecured doesn’t mean you’re more vulnerable to identity theft, it means there are no secured finances to back your spending. Unsecured credit cards are what people commonly refer to simply as credit cards. The creditor issues you a card with a certain credit limit and it’s up to you to stay within your means and make your payments on time. If you don’t, creditors can’t tap into your savings account and take care of your balance, it’s entirely up to you.

Unfortunately, many don’t have the willpower or the knowledge of their own personal finances to keep their spending under control and live within their means. This results in their percentage rate increasing, late fees being assessed, and their credit score suffering.

How do you decide if a secured credit card is for you?

Secured credit cards are generally issued to people who have declared bankruptcy or are unable to otherwise get credit. They’re also a great option for people just entering the credit world and beginning to establish a credit history.

Secured credit cards are a great tool to build your credit rating. However, they often come with very high fees, much higher than a standard unsecured credit card, so they are not recommended unless your credit is in need of repair.

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