When you apply for a credit card or loan, the lender will record each inquiry on your credit report. If you make too many inquiries, it shows that you are a risky customer who is just looking for credit and not real money.
Whether it's true or not, a secured credit card may be right for you because it's backed by a deposit account that you own. This deposit is held in a special savings account and is equal to 100–200% of the total amount of credit requested.
Cardholders of secured credit cards can still expect to make regular payments, just like they would with any other credit card. The only difference is that the card issuer has the option of taking the full cost of purchases paid to merchants out of the deposit if the cardholder doesn't pay their credit balance on time.
Most places that give out secured credit cards think that if the cardholder doesn't make the payment when they're supposed to, the account still needs to be paid before the security is returned, instead of using the money from the security to pay the balance. This is a risk for the cardholders because their card is not cancelled and the balance does not cancel out the deposit.
It's sad how easy it is to find out that what seems like an advantage at first is just a way to make money by letting interest keep building up on an unpaid balance for a long time. The total charges often add up to more than the original deposit, leaving the cardholders not only without their deposit but also with more debt that may become impossible to pay.
This is not a threat, but a condition that is usually written in the agreement for a secured credit card. Most cardholders don't pay attention to it, or they don't read it or don't understand it well when they open the account.
It's important to know all the terms of the agreement and not be afraid to ask questions when you don't understand something. Secured credit cards are the best option for people with bad credit, no credit history, or poor credit.
In fact, secured credit cards are the best way to rebuild or clean up your credit history, especially if Visa or MasterCard backs them. However, fees for secured credit cards are often higher than fees for regular, non-secured credit cards, so keep that in mind.
