Improve your credit with secured credit cards.
There was a time when it was so easy to apply and qualify for loans, that worrying about your credit history and the credit scoring process seemed a lot less significant. There was a time when I didn’t distinguish between credit cards, thinking they were all pretty much alike, but fast forward to today — with a tougher credit environment, it’s a different ball game.
If you’re having a hard time getting credit, there’s actually a type of card that may be more suitable to start with. I’d like to explore this type of card a little bit here.
Secured Credit Card Basics
I’d like to take a closer look at secured credit cards. What most of us know as credit cards are actually UNsecured credit cards. This means that a bank or credit card issuer is loaning you the money with the expectation that you will pay it back. This is a true line of credit and the reason that so many people get in to trouble with credit cards.
A secured credit card behaves differently. Here’s a refresher on how it works: let’s say that a bank contacts you and offers you a credit card where there is no credit check and you are guaranteed to be approved. The only thing you have to do is open an account with them and keep a balance in the account at all times. Here’s a handy list of such cards:
- Platinum Zero Secured Visa Card
- Orchard Bank Secured MasterCard
- Next Millenium MasterCard
- Public Savings Bank Classic Secured VISA Card
I hate pop up windows, so I put those links that may subject you to pop ups in this other section:
- First Option Visa Card
- New Millenium Bank Secured Black Diamond Visa/MasterCard
- New Millenium Bank Secured Platinum Visa/MasterCard
- New Millenium Bank Secured Gold Visa/MasterCard
Once you own such a card, the amount of money that you keep in your newly opened account becomes your credit card limit. If you want more buying power on your credit card, you’ll need to deposit more into your account. That is, your deposit serves as collateral and for all intents and purposes, represents your credit line. If you’ve got $400 in your account (most cards keep to a limit between $300 and $500), then you can charge up to that amount on your credit card.
You can always increase your credit line a few ways and it’s all based on good financial behavior: add to your existing deposit and your credit line will go up. Or keep a good track record with your card company or bank, and the institution may simply raise your credit line based on your good history.
This kind of card is called “secured” because the financial institution has a hold on your money before you can spend any of theirs. On the other hand, an unsecured credit card works by allowing you to spend before they ask for your money — many times, you get to this point after you graduate from using secured cards and establishing a clean credit history. It’s also at this point that many consumers go astray and forget that a credit line is not a source of free money but actual debt that needs to be paid off. So once you end up cleaning up your credit (or building it up successfully), protect it like a hawk!
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{ 6 comments… read them below or add one }
I never heard of this before but it is interesting to hear the differences between cards. May be a nice option for some.
Decent article, but there are a lot better ways to boost credit rating than secured credit cards.
The basic thing that helps is simply revolving payments to establish payment history. Car payments, department store payments, secured bank loans, ect all do the same thing. At least with these you are getting something…
Capital One will be coming out soon with secured credit cards.
A secured credit card is a good way to go. But, you have to watch the fees. Also, some unscrupulous issuers charge a “fee” each month that you don’t use the card. So, if you load it and put it in your wallet. These fees could be eating away at the deposit.
Read the fine print.
Opening an account doesn’t just grant you better control over your expenses, but builds your credibility in the eyes of the credit companies. They view such as a sign of responsibility, which makes you more trustworthy, which can lower the rates and improve the terms you agree to.
Yeah, I had never heard of the inactivity fee, but thanks for letting me know!