Secured credit cards are one of two types of credit cards. There are unsecured credit cards that generally only require your signature and a monthly interest rate, and perhaps an annual fee, and they will offer the consumer a designated line of credit. A secured credit card is much different, but it is an excellent way to create your credit history, or to build it back if, for instance, you have filed for bankruptcy in the past seven years or your credit is not looking so good.
Secured credit cards are easy to obtain by the general public because you are securing your line of credit with your own resources, usually with a savings deposit. This deposit will typically range from $500 to $1000, and your credit line with a secured credit card is then a percentage of that deposit, typically 50 to 100 percent. The issuing company will pay interest on your deposit, but in return there are application and processing fees associated with this type of card, sometimes totaling hundreds of dollars. Before you apply, be sure to find out what the total fees are and whether they will be refunded if you are denied a card. A secured card requires an annual fee and has a higher interest rate than an unsecured card.
Secured cards are usually easier to acquire because you are supplying the capital that you will be charging against, and this is the reason why they work well as a first credit card, or one you will be using to build your credit back up. You supply the capital and for the fees, they will manage your card and account for your transactions in a monthly statement for you.
Debit cards are a great example of how the secured credit card works. When you open an account at your neighborhood bank, they issue you checks and a debit card. You are welcome to use the debit card anywhere that credit cards are accepted as long as you have sufficient funds in your bank account. When your balance hits bottom you can no longer use your debit card until you replenish your account. It is this same principle with a secured credit card. As you run down your account you will periodically need to deposit more so you have the funds to make charges. These deposits are made by paying off the balance of the credit card in full each month. If you do not, you may forfeit your deposit and have the right to charge to the card revoked.
The process of a secured credit card is simple, but it is more costly when you include the fees, and for this reason, it is more inconvenient than an unsecured card. So to improve your credit history, keep your card with responsibility especially if you are planning any loans or investments in the future and will need record of good credit payments. Of course, keep in mind that the higher your credit score, the better your credit history will be. With a reputation of bad credit, your doors of opportunity will close quickly!
