Advantages and Disadvantages of Secured Credit Cards

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Advantages and Disadvantages of Secured Credit Cards

You can consider applying for a secured credit card if you have a bad credit history or no credit history and you are willing to establish your credit. It is not easy to obtain an unsecured credit card for those with their spoiled credit rating or for someone who hasn’t yet established a credit history. Lenders hesitate to take the chance on any person who has not got a flawless credit history.

credit-card-security
A secured credit card is almost similar to an unsecured credit card and usually it offers the same security and charging advantages. The only difference is that in order to obtain a secured credit card you have to pay a deposit of security to the credit card company having amounts similar to your credit line. With this the company assures that they will get their money back even if you turn out to be a bad credit risk.

Secured credit cards works almost same as bank debit cards, the exception is that the money spent cannot be withdrawn immediately and the user has to make payments on monthly basis. They also resembles to ‘prepaid’ credit cards, in which money must be paid first. Prepaid cards, however, are such cards that can be ‘loaded’ with any amount desired. Also, there are also fees which are deducted every time when the funds are input.

Some credit card companies might give you a limit that is a little above to your security deposit. Others may only offer a limit that is lower than your security deposit. If you have decided to have a secured credit card, shop around to find out the options that you prefer.

You should have a secured credit card

If you have got a poor credit history.
If you are having delinquent student loans.
If you have been separated from your spouse who was having a high debt ratio.
If you have declared to be bankrupt.
If you have faced a disruption in your employment or you might have recently started a new job.

Advantages of Secured Credit Card:

It helps you to establish credit even if you do not have a credit history.
It helps you to re-establish your credit in both the cases whether if you have a bad credit or you have been declared bankrupt.
It offers you a great security in times of emergency.
It gives you many of the similar benefits that you may enjoy if you have an unsecured credit card.

Disadvantages of Secured credit Card:

For having a secured credit card you have to make a security deposit, the amount of which is usually equal or more than your credit limit.

The funds that you have deposited are frozen until a time comes as your credit history is re-established.It may happen that you may not be reimbursed for the interest on your security deposit.

Of course, you will not get a free lunch whenever you obtain and use a secured card. Due to the fact that the applicant is considering high risk, a higher APR is charged. This makes the monthly payments much harder than before, for this reason bad credit history is generated originally.

In order to work around the dilemma, users should be very much sure, at least for the first year, to keep charged amounts comparatively low and make every possible effort to pay off almost all the amount due when the bill arrives to user.

You have to keep in mind the word “almost all” means you have to try your level best to pay the entire amount due on you because one of the most effective ways to build good credit history is to make payments on time and pay some interest as well. Due to this your credit score will rise quickly. So if you use your secured credit card wisely and manage it effectively, soon you’ll be on the path to a good credit history.

This post was written by:

R. Mak - who has written 328 posts on Loan Mortgage Credit!.

is an experienced IT Consultant turned Blogger, Interested in Technology, Personal Finance, Humans and Life...You and discover more about him by following RMak on twitter.

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