Debt Free Destiny

What are secured credit cards, guaranteed credit cards and pre-paid credit cards?

While a secured credit card can be used to establish a positive credit rating, there are some things you should consider. How much the card costs, how the card company will use your deposit and what APR is charged is necessary information to make a good decision.

For many people, opening a new credit line can be difficult. This is true of young couples just starting out as well as older folks who may have had a hard time early in life or has a history of “slow pays” resulting in a bad credit score.

In all these instances, a secured credit card could possibly be the only way to re-establish your credit and get back on your feet.

The Best Deals on Prepaid Credit Cards

What is a Secured Credit Card?

Many companies offer a credit card that is secured by a cash deposit into an account that is held on the customer’s behalf. This account is only accessible by the card owner and the card issuer. It is only used to make sure the card company gets their money.

This type of credit card is usually a viable option for customers with a questionable credit history who are looking to establish their credit. Because of the nature of the card, it carries some costs. Secured cards are very similar to prepaid cards, guaranteed cards and are very attractive to new credit card customers everywhere.

What Costs can I Expect?

Like most credit cards, secured cards have fees. Common fees are instituted for processing, application and the all-powerful annual fee.

Be careful of these as most are taken from your deposit account directly. You will want to stay away from cards that eat up most or all of your deposit.

How Much is the Deposit and how will it be Used?

The amount of the deposit required depends on the issuing company. This could range from $150 to as much as $1500 or more. There may even be a minimum deposit amount as well as a maximum.

Some companies put the deposit money in an account that collects interest. If so, ask how much it accrues. This money is primarily used to collect payments you have defaulted on (not paid on time). Some companies only use that fund to take payments that are seriously in arrears (late by 3 months or more) while others will use it for a single payment that is one day late.

What about Credit Limits, APR’s and Eligibility?

Your credit limit may not be the exact amount of your deposit. Usually, this is set at some percentage of the account balance.

The APR is the interest rate at which you will be charged for carrying a balance after the billing period is completed. This is also known as a finance charge.

To be eligible, most clients are required to have a checking or savings account established. In some cases, age and income may be considered for application purposes.

Lastly, make sure your card reports timely and positive activities to the three major credit bureaus; Transunion, Equifax and Experian. This will help you get established faster. After you have made some timely payments, some cards allow you to convert the card to an unsecured card with a lower rate.