As was said in an earlier article, there are two kinds of credit cards: those that require a deposit and those that don't. This article will talk about a few problems with secured credit cards.
What's a secured credit card?
A secured card is a type of credit card that requires you to put a certain amount of money into a savings account, money market account, or certificate of deposit. Usually, the minimum amount is between $200 and $500, but this varies from company to company. Your deposit is your security, and some credit card companies will even let you earn interest on it.
Your credit limit is the amount you put into the account. You should know that sometimes the limit is the same as the amount you put into the account, but with some companies the limit is a percentage of the amount you put in.
A debit card is not the same as a secured credit card. This is important to know because interest will be added to the remaining balance if full payments are not made every month.
Who should think about using credit cards with a deposit?
Using a secured credit card can be a good way to start building credit if you have no credit history at all. This could be a good choice for many young people just starting out.
If you have bad credit, you might want to use a secured credit card to help you raise your credit score. Also, you may not have any other way to get a credit card besides a secured credit card. There are some purchases that can only be made with a credit card. This could mean renting a car or making a reservation at a hotel. If you need to make those kinds of purchases and can't get an unsecured credit card, this might be the only way to get a real credit card.
Look for these things in a secured credit card:
Interest Rate: Don't think that because you have no credit history or a bad credit report, you have to settle for high interest rates. Before you apply for a secured credit card, make it a point to look around for the best rates you can get.
Fees: Once you open an account, pay close attention to any fees that will be charged to you or the account. Some companies charge ridiculously high fees that take away from your initial deposit even before you use the card. Don't do business with these firms. Look for companies that don't charge any fees or that charge a small, one-time fee to set up an account. Most attractive secured cards have annual fees of between $20 and $35.
Scams: It's sad to say that some companies are in the business of stealing money from people. They take advantage of people who are weak or who may have trouble getting money. One of the things they do is promise to get you "quick credit" for a fee. Asking you to call a 900 number for "secrets" about getting a credit card or fixing your credit is another common scam. If you call a 900 number, your phone company will charge you a lot, and you won't get the information you were promised.
To avoid secured credit card scams, the best thing to remember is that if something sounds too good to be true, it probably is. Use common sense and don't let these crooks fool you.
Credit Improvement Problems: Even if you've always paid on time with your secured card, it can take many months before your credit record starts to get better. If you want to fix your bad credit, you have to be patient. You need to be smart, too. Make sure that the company that gives you the secured credit card will tell the three big credit agencies about your good payment history. Companies don't have to report, and if they don't, you're just wasting your time.
Remember that if you don't pay on time, they will also tell others about your bad payment history. Be careful, and make sure you pay your bills on time every month.
