A Summary of Secured Credit Cards
Secured credit cards are becoming quite popular. There seems to be several reasons for this popularity – from rebuilding credit to helping people in these tough economic times to helping a younger generation learn sound and practical spending habits.
Secured and unsecured credit cards are very much alike. The primary difference is that secured credit cards require a deposit prior to the cardholder using the card. Once the deposit is made, the cardholder can only spend up to the deposited amount. The good thing about this is that the cardholder should never be in debt because the card provider is not issuing a line of credit to the cardholder; instead, the cardholder has made a deposit to be held in the event the cardholder does not make his monthly payments. In essence, the deposited amount secures any purchases made by the cardholder. The amount of the deposit can vary from card to card, however, the usual initial deposit is $500.
Another benefit of a secured credit card is that the younger-than-21 generation has the ability to obtain a credit card without the requirement of a co-signer. As stated above, the deposit is held by the card provider to secure any purchases made by the cardholder. Once the account is closed, the deposit will be returned to the cardholder, provided the account is in good standing. Additionally, if the cardholder defaults on the credit card, the card provider will retain the deposit.
In most other respects, a secured credit card is very similar to an unsecured credit card. The cardholder can use the credit card to pay for goods and services, purchase items online, and make ATM withdrawals, provided there are funds available on the credit card.
Another benefit of secured credit cards is that the card providers regularly report to the three major credit reporting bureaus. Because of this reporting, cardholders can begin to rebuild their credit or, in the case of the younger generation which has not had the opportunity to build credit, it allows the cardholder to build a good, sound credit history.
You should watch out for annual and/or monthly fees associated with secured credit cards. These annual and monthly fees vary from card to card and can be quite substantial. Another thing to watch for with secured credit cards is the annual percentage rate (APR). The APR is normally higher for secured credit cards which means the cardholder will pay more in interest. So, if you decide to apply for a secured credit card, be sure to do your homework first and find the best card with the lowest APR and fewest and lowest additional fees.
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