Have you been thinking about getting a secured credit card but aren’t sure whether one would make sense for your financial situation? If so, you are not alone. Every week, millions of people apply for and get secured cards.
What to Know About Secured Credit Cards
For the vast majority who opt for this method of obtaining a plastic charge card, the decision is a smart one. So why do secured cards have an almost universally good effect on those who get them?
There are dozens of reasons, but the key points to keep in mind is that deposits, while necessary, are usually low. Additionally, you can improve your credit scores by managing a secured card wisely, as long as you use discipline and planning.
And while late fees and annual costs can add up, it’s possible to choose issuers who don’t charge high fees. Finally, features like rewards, reasonable interest rates, and quick approval make “secured-plastic” a good choice for most who decide to get a secured card.
1. Deposits are Required
Nearly every secured card requires a deposit. Very few will waive the deposit for applicants with borderline-good credit. Keep in mind that the very nature of secured cards is the fact that they “secure” your available credit with a cash deposit.
The good news is that deposit amounts vary widely, and some companies will raise your level of credit above the deposit amount after a few on-time payments. So it’s imperative to shop around and compare rates, features, rules, fees, penalties, and other conditions for all the cards you’re considering.
2. Credit Improvement is Possible
By far, the main reason people apply for secured cards is to improve their credit ratings and scores with all the major bureaus. So always check, when applying, to make sure that the lender reports to all the bureaus.
Some only report to one or two. It’s to your advantage to obtain a secured card that reports to all three. That way, your credit scores can improve faster and by a more significant amount.
3. Fees Can Add Up
Read the fine print about fees. Some cards are very reasonable and only charge modest late fees and low, or no, annual fees. Others come with high late, annual, and application fees.
4. There are Some Excellent Rewards
Again, check the fine print of the agreement for details about rewards. There are several excellent secured cards that offer both cash-back and air-mile rewards. Not all issuers advertise their rewards, so read offers carefully.
5. Interest Rates are Higher Than for Non-Secured Cards
It only stands to reason that a secured card will come with higher rates. Applicants tend to have lower credit scores. But, you can get around this challenge by paying your secured credit card bill in full each month.
6. Approval is Simple and Fast
With reputable companies that offer secured accounts, application forms tend to be very short and easy to fill out. The key to the whole process, for lenders, is that you are putting down a deposit. That means they don’t need to dig for extensive information about your creditworthiness. Instead, the deposit is your collateral.
Expect to spend less than 10 minutes on the application, receive a response, and receive a hard card in the mail within a few business days. Sometimes, you’ll be approved as soon as the deposit money makes its way into the lender’s account. The mailed card might take a few additional days to arrive.
7. Most People Have Positive Experiences
Keep in mind that not everyone needs a secured card. If, for example, you already have decent credit, there’s really no need to pay the higher-than-normal interest rates or to put a security deposit down on a card.
But, if you are in the process of building credit or getting out from under a bankruptcy, a secured credit card can be the ideal way to get back to financial health and enjoy the convenience of plastic spending.
Not only do secured cards come with a variety of features, many offer rewards, and nearly all of them report to the major bureaus. That means if you make timely payments and don’t go over the limit, you’ll be enhancing your credit scores and rating month after month.