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Money Saving Minute #046 - Secured Credit Cards
Most loans are secured by collateral. Standard credit cards, however, have no security for the lender so a borrower must first show a positive credit history before being issued an unsecured line of credit. This can make it difficult for individuals that are trying to build or rebuild their credit profile. Secured credit card accounts, however, bridge this gap.
When applying for a secured credit card a borrower will be asked for a security deposit. Generally this deposit is equal to the line of credit requested. This protects the bank against the risk of default.
In all other ways, a secured card operates just like a standard credit card. Cardholders receive monthly bills that they must pay on time. In return, banks report payment information to the credit bureaus, allowing cardholder to build their credit history. To note, do not confuse a secured credit card with a prepaid credit card. The security deposit is to secure the line of credit, not to pay for purchases made with the card.
When shopping for a secured credit account, look for a card with a low annual fee and perhaps one that might pay interest on the deposit. Stick with reputable banks and avoid unreasonable fees. Applicants with outstanding liens or a recent bankruptcy may not qualify for some programs so be sure to ask questions when applying.
Once you have your new credit card, keep the following rules for building credit in mind: (1) keep your total purchases for the month under 10% of the available limit. (2) Pay off the balance in full every month and (3) your total purchase for the month will be reported on credit. Even if you pay off the balance in full one hour after making the purchase the lender will still report the high balance for the month as your total of purchases.
(1) Stay under 10% of the available limit
(2) Pay off the balance in full every month
(3) Total purchase for the month will be reported
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When applying for a secured credit card a borrower will be asked for a security deposit. Generally this deposit is equal to the line of credit requested. This protects the bank against the risk of default.
In all other ways, a secured card operates just like a standard credit card. Cardholders receive monthly bills that they must pay on time. In return, banks report payment information to the credit bureaus, allowing cardholder to build their credit history. To note, do not confuse a secured credit card with a prepaid credit card. The security deposit is to secure the line of credit, not to pay for purchases made with the card.
When shopping for a secured credit account, look for a card with a low annual fee and perhaps one that might pay interest on the deposit. Stick with reputable banks and avoid unreasonable fees. Applicants with outstanding liens or a recent bankruptcy may not qualify for some programs so be sure to ask questions when applying.
Once you have your new credit card, keep the following rules for building credit in mind: (1) keep your total purchases for the month under 10% of the available limit. (2) Pay off the balance in full every month and (3) your total purchase for the month will be reported on credit. Even if you pay off the balance in full one hour after making the purchase the lender will still report the high balance for the month as your total of purchases.
(1) Stay under 10% of the available limit
(2) Pay off the balance in full every month
(3) Total purchase for the month will be reported
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