What is a Secured Credit Card?

If you have bad credit or you want to re-establish your credit, you will probably want to look into a secured credit card. The nice thing about a secured credit card is that most people who apply for them generally get approved. If you’ve been having a hard time getting approved for a bad credit card or a regular credit card, you may want to try your luck with a secured credit card.

What Is A Secured Credit Card?

A secured credit card is a credit card that will help you establish or re-establish your credit. A security deposit is generally required when you want to use this card. So, in essence the credit card companies are still lending you money but if you fail to pay off your bill in time, the credit card companies can deduct the money out of your deposit.

A secured credit card is generally ideal for someone that has bad credit. If you’re looking to establish credit for the first time, you’ll probably want to go along the routes of applying for either a student credit card or a regular credit card that caters to first time credit card appliers. This way you can avoid paying any type of annual fee. Most secured credit cards carry an annual fee.

Keep in mind that fees associated with these types of credit cards are a little higher than those of a regular credit card on the market. This is because as mentioned above, they are targeted toward people with bad credit. If you have bad credit, companies are more hesitant to lend to you causing rates and fees to be a little bit higher.

How The Secured Credit Cards Work

The first thing that the bank is going to ask for is an application. This is the process to ensure that you’re an American citizen as well as make sure that you fit their profile. 99.9% of the time, as long as you’re a citizen, you’ll find that you’ll be approved.

Once you get a sign of approval, the bank will require a deposit. This deposit can range anywhere from $100 to as much as $3,000 depending on the bank. This will all be up to the cardholder to place as much as they want on the card. Keep in mind that whatever amount you place on the card, this is going to become your credit limit.

For example, let’s say that you place $500 on your secured card. The bank will then give you $500 in credit that you’ll be able to use online as well as with merchants. If the cardholder fails to pay this money back, the bank will simply dip into the deposit and take the money, making it a win-win situation for the bank.

These type of cards are available to those that both have bad credit as well as those that are even starting out to the credit market for the first time. For those that are looking for a credit card, be sure to compare a few cards that are listed online to ensure that one is picked out that fits your requirements.