Secured Bank Cards Help Establish Credit
Posted on August 6, 2010
Filed Under Credit, Personal Finance | Leave a Comment
As we have noted previously, establishing credit can be challenging if you do not already have credit. The very first thing any loan company wants to do when you apply for an account is to check your credit report. And if you have no credit, there will not be anything on the report that suggests that you’re worthy of any. It’s a classic “Catch 22” circumstance. What can you do?
There are several solutions, but the best of them is for you to establish an account with a company that offers a secured bank card. Like the name suggests, this type of card is “secured’ by cash security. When you open your account, you will provide the financial institution with a cash deposit. This money will be placed into an interest bearing account in your name and as long as you have the card, the money will be held there. Your card will be issued to you with an available limit that doesn’t exceed the amount of the deposit. In a few cases, the limit will be as little as half of the deposit amount, but more frequently than not, you will be granted a limit of close to the total deposit amount.
These secured credit cards differ from prepaid credit cards, where there is no bank account that secures the card. With prepaid cards, the money is literally “loaded” onto the card itself. Your card has a limit of the amount of cash you gave them when you purchased the card. These charge cards may be “reloaded” for repeated use, but they are greatly considered to be debit cards and don’t help you establish a credit rating, although there are several exceptions to this.)
Having applied and put up a deposit to secure the account, you’ll have a financial tool that you may use just as anyone else might use one. The card is otherwise indistinguishable from any other “normal” account. You will get monthly bills, and as long as you pay them on time, you’ll be earning credit in your name and building your credit score. You may continue to use this card for as long as you like, but at some point you’ll probably wish to try to obtain an unsecured charge card.
Unsecured cards tend to have reduced rates of interest than do secured ones. Plus they are less likely to include an annual fee for their use. And of course, they don’t tie up a lotl of your cash in a bank account that you cannot touch. For anyone who needs to establish a credit history, a secured account is the way to go, but you do not wish to keep using one any longer than is absolutely necessary. They are just too pricey.
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- Things You Need to Know About Prepaid Credit Cards
- Build A Credit Background With Credit Cards Instant Approval
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