It can be difficult to get approved if you’re applying for a credit card for the first time. Without a credit card, simple tasks such as renting a car or reserving a hotel room become more complicated. Applying for a secured credit card may help. With responsible use, a secured credit card may help you establish a credit history and build your reputation as a borrower who may be a suitable candidate for other types of loans.
1. What Is A Secured Credit Card?
A bank that offers a secured credit card requires the applicant to make a deposit before it will open the credit card account. This deposit is called collateral. If the cardholder uses the credit card but doesn’t make the payments as promised, then the card issuer can keep the deposit for any outstanding balance. This arrangement protects the card issuer from default.
2. What Is A Unsecured Credit Card?
An unsecured credit card does not require the cardholder to give the card issuer a deposit. For this reason, unsecured credit card issuers are more selective during the application process and it can be more difficult for an aspiring cardholder to get approved. That’s because card issuers prefer applicants who have established a credit history of repaying loans on time.
3. What Is The Difference Between Secured And Unsecured Credit Cards?
Aside from the deposit, secured and unsecured credit cards work in similar ways. A cardholder can spend up to the credit limit established by the card issuer, provided the cardholder makes regular, on-time payments and abides by other cardholder agreement terms. Secured and unsecured cardholders can also use their credit cards anywhere that accepts them, provided they don’t spend over their personal credit limit.
4. How Much Is The Deposit For A Secured Credit Card?
How much of a deposit is required depends on a wide variety of factors, but banks that offer secured credit cards can require collateral ranging anywhere from $200 up to $5,000. In many cases, the size of the deposit is equal to the size of the credit limit. That means an applicant who is granted a $500 secured credit card limit may need to give the credit card issuer $500 in monetary funds, up front, as collateral to secure the deposit.
5. When Would A Secured Credit Card Make Sense For Me?
If you’re just starting out in the world of credit and have never had a credit card or loan before, then a secured credit card may make sense. Before applying, consider the card’s terms and conditions carefully. You should also consider the card issuer and their policies and rewards (if any) based on the card selected.
6. How Can A Secured Credit Card Help Rebuild My Credit History?
Regular, on-time payments play an important role in maintaining credit health. Therefore, a secured credit cardholder who establishes a pattern of making regular, on-time payments can help build credit history. As you consider a secured credit card, verify that the card issuer reports your activity to the credit bureaus. Card issuers that report to credit bureaus give you the best opportunity to establish your credit history.