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A secured credit card requires you to deposit money
into a savings account as security for your line of credit. The required
deposit usually ranges from a few hundred to a few thousand dollars.
Your credit line then becomes a percentage of that deposit—typically
between 50 and 100 percent. Otherwise, the secured card works exactly
the same way as an unsecured card—no one but you and your bank will know
that the card is secured.
Because you deposit money into the bank before you can receive credit,
it’s often easier to get accepted for a secured card than an unsecured
one. For this reason, secured cards can be useful for establishing or
rebuilding your credit history. However, secured cards typically have
higher interest rates and annual fees than unsecured cards.
A Secured Credit Card ( Visa or MasterCard ) requires you to open and
maintain a savings account as security for your line of credit; an
unsecured card does not.
A Secured credit card is different than a unsecured card. They are very
similar to a debit credit card. You are required to deposit a certain
amount of funds into your account. This amount will be your credit
limit. A Secured credit card is great if you don't have a good credit
record, unemployed, or are trying to rebuild your credit. The required
savings deposit for a secured card may range from a few hundred to
several thousand dollars. Your credit line is a percentage of your
deposit, typically 50 to 100 percent. Usually, a bank will pay interest
on your deposit. Because the account is "secured" by funds provided by
the accountholder it carries a lower risk. This risk reduction enables
banks to extend offers it to even more people.
There are two primary reasons consumers are interested in a secured
credit card. The first and primary reason is they are new to credit and
have not established a history that allows them to qualify for
traditional credit card products. The Secured product helps consumers to
establish a history of payment and qualify for more traditional credit
products. The second reason consumers are interested in Secured Credit
Cards is to help them reestablish a positive credit and payment history
if they have some blemishes on their credit history.
In addition, you also may have to pay application and processing fees --
sometimes totaling hundreds of dollars. Before you apply, be sure to ask
what the total fees are and whether they will be refunded if you're
denied a card. Typically, a secured card requires an annual fee and has
a higher interest rate than an unsecured card. But, unsecured cards for
bad credit typically have high fees also. If you have extremely bad
credit, it may be necessary to obtain a secured card initially, then
build your credit by making timely payments. Eventually, you will build
a positive credit history and you can move on to unsecured credit cards.
You will be required to fill out an application for a secured card, just
as with any bank card. While secured cards may have more lenient
standards than regular bank cards in assessing your credit history,
secured card applications are not automatically approved just because
you are putting down money as security. Card companies have different
requirements. All the banks CA surveyed will accept people who have no
credit history-no information on file with one of the major credit
bureaus. This makes secured cards a viable option for young adults just
entering the job and credit markets. Some cards are easy to get, while
others have strict guidelines about income and past credit history.
Some will even accept people who have had a bankruptcy as recently as
six months or one year before they apply. However, the majority of
secured cards require that bankruptcies have been discharged by a court
or are at least 10 years old and have been permanently removed from your
credit report.The majority of secured card issuers surveyed will also
consider applicants who have had credit problems-although most issuers
require that there be no late payments recorded on your credit report in
the last six months.
People's Bank will accept only applicants with no credit history-not
those with poor credit. Eight surveyed banks will not consider people
with a past bankruptcy, and six will not accept people with federal tax
liens on their credit reports.
CA has long been interested in seeing more secured card choices, because
they offer a way for people to build credit and repair past problems.
When CA first examined secured cards in the 1970s, many carried very
high costs. A large up-front payment-called an "application" fee-was
usually required. But CA discovered in its 1995 survey that many secured
cards are now available without such fees.
"We found many cards without application fees, which was very good news
for consumers," said Cheer McIntyre, CA's director of advocacy. "So we
dropped all the secured cards with application fees from our list. Now
there's no reason to pay an application fee when applying for a secured
credit card."
Secured cards usually have annual fees. On 16 of the 20 surveyed cards,
these fees are $25 or higher. (Many unsecured cards have no annual
fees.)
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