Secured Credit CardFinancial Dictionary -> Loans -> Secured Credit Card
If you've never had credit or have less-than-perfect credit, you may want to consider applying for a secured credit card. Wise use of it can build your credit so that you can apply for mortgages and loans later on. This is particularly good for college students who have not established their credit yet.
What makes a credit card "secured" is that secured credit card issuers require cash to back up the amount of credit for which you're approved. The cash translates into a collateral deposit. For example, if you have $1000 in your account as "security" you would have $1000 worth of credit on your card. Depending on the bank, you may be able to add to your account to up your credit or they may reward timely payments and increase it based on payment history.
You may want to apply for a secured credit card if:
- You have no credit history
- You have a poor credit rating
- You're a member of a credit union that offers secured credit cards for low interest rates
- You're a student
- You want to build a solid credit history
As with any credit card, be sure to make timely payments. Late payments may be reported to credit reporting agencies, such as TransUnion, Equifax and Experian, and do damage to your credit. However, making payments on time and keeping balances low will soon give you the good credit rating you desire.
There are many lenders that offer secured credit cards. Once you've decided to apply, look for those who offer the lowest interest rates and low or no annual fee. The best place to apply may be your bank. Make sure the lender you choose reports to a credit bureau, else no amount of timely payments will help you establish or re-establish your credit. If applying online, be aware of credit card scams. If you feel you are a victim of a scam, you may report it to the Federal Trade Commission.
Having a credit card is a convenience that will enable you to make purchases online, buy airline tickets, secure rental cars and establish credit. When used wisely, a secured credit card can be beneficial. Just be sure before you charge anything that you can afford the monthly payments on your card.