Many people are in the unfortunate situation where they have bad credit but they need to have a credit card. The reasons vary, but they’re mostly related to being able to pay for stuff. For example, there’s no need to stress the fact that if you’re out shopping for what you need, it’s so much safer to be able to use a credit card than to carry around a wad of cash. It’s also more convenient that writing a check.
Furthermore, paying with a credit card provides you with a record of your purchases, which can come in handy when you’re trying to keep your spending under control. Finally, credit cards can help you build your credit. So when you look at it, it’s not ALL bad when it comes to credit cards. You simply have to use them carefully. That’s where a secured credit card can help you get the best of both worlds.
In case you’re wondering, a secured credit card works just like any other “normal” credit card out there, and also looks the same; it can bear the Visa, Mastercard, American Express, or Discover logo. So there’s no concern over people knowing that you’re using a secured credit card, if that’s something you’d care about. The major difference with a secured credit card comes into play when you’re about to get it. Here’s how it works:
What you have to do is go open a savings account where you will put a few hundred dollars, with the understanding that you’re giving the company that’s going to issue your card the right to take that money if you don’t make your payments. For this to be possible, you “pledge” the money to them, agreeing to put it up as the collateral for your secured credit card.
As the money that will serve as collateral is usually deposited in a savings account, it usually generates interest, which is a nice perk. Plus, there’s nothing that states that your collateral will never be available for you to use. After a certain amount of time, usually a year, you can ask for your account to be upgraded. Of course, you will need to show that you’ve been paying on time; if you can satisfy that requirement, your request will likely be approved and you will be free to withdraw your deposit or use it in any way you see fit.
Getting a secured card also means that you can pretty much decide what your credit limit will be. By increasing or decreasing the amount of money that you put into your collateral account, you decide what your limit will be. You also feel more confident when you have to make your monthly minimum payments, knowing that no matter what, you can simply pay off the balance on the card with your security deposit and then use the balance (if any) to do whatever you want.
One of the important things to keep in mind is that you will have to pay fees in one way or another. A little online comparison shopping will go a long way towards helping you finding deals that are competitive. Online issuers often offer perks, in a bid to get more customers.
Remember: a secured credit card and a prepaid credit card are NOT the same. Issuers of prepaid credit cards don’t report to the credit bureaus because they don’t bill you on a monthly basis. You main goal when getting a secured credit card is to rebuild your credit, and from that angle, a prepaid credit card would bring nothing to the table, so to speak.
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