Should You Get a Secured Credit Card?
Secured cards are for those who have no credit or a bad credit history and can't get a traditional credit card. This card can also be an option for those who have a completed bankruptcy. Consider a secured card as a short-term band-aid to repair your credit. If used correctly, a good payment history with the secured card should improve your credit score enough that you will qualify for a standard card in 12 months to 2 years.
The secured card looks like a traditional credit card- the merchant will not know it is a secured card. The difference between the secured and unsecured card is the higher rate and fees for the secured card. The credit limit for the secured card is determined by the deposit.
The credit limit is based on the deposit. If your deposit is $300, you will receive a Mastercard or Visa with a credit limit up to $300. The security deposit is not used to pay for charges but to cover the balance if the account is closed. The deposit is held until the account is closed. The deposit is not applied toward payment on the balance; you must make the monthly payments on the card or the bank will turn the account over to collections. This will damage your credit score even more.
The bank is willing to offer this form of credit because it receives a security deposit and keeps it as long as the card is open. The bank is safe because it will just keep the deposit if the bill is not paid and does not lose any money.
There are fewer requirements for a secured card: you must have a telephone in your home; reside in the US and have a valid Social Security Number. While many applications are accepted, you are not guaranteed to receive a card. Unpaid tax liens or undischarged bankruptcies may prevent you from getting the card. Some issuers will not offer a card if there is a past bankruptcy.
Pay your bill on time and you will typically be upgraded to an unsecured card in about 18 months. Some cards may also increase the credit limit to more than your deposit. After 12 months of good payment history, start contacting the issuer about converting your card to an unsecured card with a lower rate and a deposit refund. After 2 years of good payment history, you should qualify for traditional credit cards.
Your available credit may also be limited, from time to time, if you give your account number or card to a merchant that processes advance authorizations, such as a hotel, motel or car rental office. Such an authorization may limit your ability to make purchases and take cash advances on your account until the authorization is cancelled by the merchant and your available credit released.
Make sure that the secured card you are applying for reports to the credit bureaus. This is necessary to start rebuilding your credit history. If the card doesn't report your history, a good payment record will not affect your credit score. Some cards require an additional fee for this- save yourself some money and choose one that doesn't require this fee but still reports.
Orchard Bank Mastercard Classic is a good choice if you will pay off your balance each month. The opening fee is a little high compared to other cards but it does report to all 3 credit bureaus.
Here is a comparison of cards for people with poor credit.
The secured card looks like a traditional credit card- the merchant will not know it is a secured card. The difference between the secured and unsecured card is the higher rate and fees for the secured card. The credit limit for the secured card is determined by the deposit.
The credit limit is based on the deposit. If your deposit is $300, you will receive a Mastercard or Visa with a credit limit up to $300. The security deposit is not used to pay for charges but to cover the balance if the account is closed. The deposit is held until the account is closed. The deposit is not applied toward payment on the balance; you must make the monthly payments on the card or the bank will turn the account over to collections. This will damage your credit score even more.
The bank is willing to offer this form of credit because it receives a security deposit and keeps it as long as the card is open. The bank is safe because it will just keep the deposit if the bill is not paid and does not lose any money.
There are fewer requirements for a secured card: you must have a telephone in your home; reside in the US and have a valid Social Security Number. While many applications are accepted, you are not guaranteed to receive a card. Unpaid tax liens or undischarged bankruptcies may prevent you from getting the card. Some issuers will not offer a card if there is a past bankruptcy.
Pay your bill on time and you will typically be upgraded to an unsecured card in about 18 months. Some cards may also increase the credit limit to more than your deposit. After 12 months of good payment history, start contacting the issuer about converting your card to an unsecured card with a lower rate and a deposit refund. After 2 years of good payment history, you should qualify for traditional credit cards.
Your available credit may also be limited, from time to time, if you give your account number or card to a merchant that processes advance authorizations, such as a hotel, motel or car rental office. Such an authorization may limit your ability to make purchases and take cash advances on your account until the authorization is cancelled by the merchant and your available credit released.
Make sure that the secured card you are applying for reports to the credit bureaus. This is necessary to start rebuilding your credit history. If the card doesn't report your history, a good payment record will not affect your credit score. Some cards require an additional fee for this- save yourself some money and choose one that doesn't require this fee but still reports.
Orchard Bank Mastercard Classic is a good choice if you will pay off your balance each month. The opening fee is a little high compared to other cards but it does report to all 3 credit bureaus.
Here is a comparison of cards for people with poor credit.
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