Many people have found their credit to have taken a big hit in the recession and are now left with a low credit score and no way to obtain a loan or credit card to rebuild their credit without a high interest rate. However, a secured credit card is a viable option for those who are looking to repair their credit score.
Many banks that offer a secured credit card will ask for a deposit or collateral against the credit card, hence the name secured credit card. Most likely that security will come in the form of a savings account or simply a new account opened by you, in which you deposit cash.
Usually the credit limit on the card is the amount in the account or value of the collateral and if the cardholder misses a payment that collateral or secured account will be used to make the payment. However, rebuilding one’s credit will not benefit from missed payments so don’t think of the secured account as a safety net that allows you to miss payments.
Many people ask, “Why should I buy on credit if I have the money in the bank anyway?” Simply put, raising your credit score requires payment on credit purchases. Also, the reason you are getting a secure credit card is to rebuild your credit so just paying cash isn’t going to help in that area.
Also, the longer you make payments on your secured credit card and keep a good history, the higher credit limit you will have on the card and there is an excellent chance the bank may allow you an unsecured credit card when you prove you are back on your feet and can meet the payments.
If you are looking for a secured credit card then make certain it is from a reputable lender who will not charge excessive fines and fees, and you also want a card with as low of an interest rate as you can get, seeing as how it is a secured card. Going with a lender that realizes you are trying to rebuild your credit and who will not seek to drain you of your money is always a safe bet.
