Unsecured credit cards offer a simple means to build up your credit history, since no collateral is required to use it, however, if you do not have good credit, the chances of getting approved on an unsecured credit card are virtually nonexistent.
If you are in this type of situation, your chances of being approved for a credit card will be greater if you apply for one that is secured. Secured credit cards use a specific savings account ordered by the card issuer to hold money that functions as collateral to give security to the card’s account.
Payment histories on unsecured credit cards are watched by the three major credit bureaus, but secured credit cards are not always monitored in this way or even report their payment histories, it will depend upon the individual credit card issuer.
Secured credit cards offer a way to increase your credit score; this is usually accomplished by choosing those companies that report the payment history to major credit bureaus. While they may or may not be listed on the application form, the benefits of using a secured credit card in this way may be further explained by the company’s customer service department.
You can raise your credit score with little trouble, all that is required is to use the secured credit card to purchase items and pay off the balance on time.
The secured credit card is different from a standard card, because any default payments are collected from the balance you have sitting in your saving account.
It is easier to get approval for a secured credit card than for other forms of credit cards because there are fewer obstacles in the way. You may not apply for a secured credit card if you are not at least 18 years of age and presently maintain a residence in the U.S.. There is no required credit check done because your credit card is secured by collateral in the form of money in a savings account.
The credit limit on your card is based directly on the cash deposit in your account; if you want to increase that limit, simply add more money to the account which also earns interest provided there are no defaults on payments.
One of the biggest advantages of having a secured credit card is when you add more money to raise the card’s limit you also can earn more interest in the account. Of course, you might also count the fact that these secured cards can help you avoid credit card debt, since you cannot spend any more than what you have in your saving account.
If you happen to be one of the millions that have bad credit or none at all, then a secured credit card may be the best choice because if you use these cards regularly and are able to pay promptly and on time, you will begin to see increases in your credit score and eventually, you might qualify for better rates and more options.
Alisdair Cosgrove is a freelance writer specializing in personal finance. You can read more of his work at www.JSNet.org for
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