A credit card is mandatory in our society. Even if you don’t need it for your loan, it is necessary to do shopping online to book a car, hotel, airfare or a hotel on vacation. If you are not eligible for a regular credit card, a secured one may be the only solution for you.
A secured credit card is “plastic”, which uses cash deposit as collateral. There is usually a limit for the amount of cash stored on it. These cards are the perfect solution for those who have bad credit history or no history. Thanks to that, people can create and / or restore credit history.
The purpose of such cards is to provide the issuing company or bank security with a debtor’s deposit. If the borrower ever ceases to pay its debts, the creditor will be able to pick up his bail.
Any cardholder may have difficult times and, accordingly, problems with timely payments, so banks and companies offering this kind of a credit card are trying to ensure their safety. Therefore, choosing the secured card is a very responsible step. Keep in mind, that you can find the best credit cards on Effectify quickly and easily.
How does it work?
Secured credit cards are linked with some sort of valuable collateral, such as savings or securities. You have to put few hundreds of dollars into your account, and you will not be able to withdraw the money. The lender will give you one with a limit equal to from 50% to 100% of the amount of funds in your account, but it also depends on your credit rating and other factors.
It is important that when you use your card, don’t allow yourself to spend funds from your collateral account, otherwise you will have to pay the cost with the additional interest. Your savings should remain in your account. If you ever cease to pay the loan, the lender will have a right to seize your collateral funds from your account.
Advantages and disadvantages
Their disadvantage is that your credit limit is limited to the amount, which was put into the account. If you exceed your limit, the interest rate will be even higher than in unsecured cards.
The advantage of using a secured credit card is in the discipline and positive effect on your credit history. You know that many people abuse them, buying even completely unnecessary things. In case of a secured credit card, you will not be able to abuse your wallet, because it would exceed the credit limit. In fact, they are best used by people who want to discipline themselves.
They also include the regular fees and annual fees. All you need t is to find the option with the lowest interest rate and less fees.
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