One of the most important financial factors in our society is whether a person has good credit. Credit cards are not always easy to acquire when you have no credit history, many lenders will shy away from a person that has never had credit due to the fact that they dont know if you are responsible enough to pay off a credit card bill. The case is true as well for people that have had very bad credit in the past and now are finally done with their debts. Many people need credit cards to start growing their credit card rating again, but most banks dont want to take a chance. What can people do in these situations? The answer is simple- secured credit cards. The overwhelming majority of credit cards are unsecured, this is why the banks charge lots of interest and default rates are very high. When a bank gives you a credit card for a certain amount, they do not request collateral. Unlike mortgages that keep homes as collateral or a car loan in which your car can be repossessed, credit card loans have limited recourse if you default on your debt. One of the ways to break through the barrier of getting a credit card is to secure your loan with the credit card issuer. A secured credit card is a bank account that you set up with the credit card issuer. The bank then sends you a credit card. The bank will usually give you a credit limit amount of which you have deposited into your bank account with them. For instance, if you would like a $500 line of credit, deposit $500 in the account. This way, if you dont pay, they have your money and dont lose anything. Secured credit cards make their money by having you pay certain fees each month or year and still collect interest from your purchases. While fees vary, remember you are paying a premium to either start off your credit history or begin a new chapter on your credit rating. |
