A Quick and Dirty Rundown on Secured Credit Cards
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by: barrywaters
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Secured credit cards are a safe way to rebuild your credit. However, most people have no idea they exist. Here are the basic facts youll neeed to know to apply for a secured credit card.
How are secured credit cards different from regular credit cards?
When you receive a secured credit card, you give the credit card company a security deposit of $300 to $500. The amount of your security deposit is the size of your credit line. For example, if you deposit $375, your credit line is $375. You get bills every month and pay interest, just like with a normal credit card. Your deposit remains in a holding account unless you cannot pay your bill, in which case the bank covers the defaulted amount by dipping into your deposit.
Can I increase my credit line by depositing more cash?
Yes, you can. If you prove to be creditworthy, your credit card company may choose to extend your credit line without requiring a larger deposit.
What happens to the deposit?
Your security deposit is placed in a certificate of deposit, money market account, or savings account. It earns interest for the duration of your secured account. When you move to an unsecured credit card or close the account, your issuer will hold the deposit for at least a billing cycle or two in order to cover any charges that havent arrived yet. Then the company will restore your deposit to you, plus all interest earned.
What fees will I pay for a secured credit card?
Secured credit cards all come with an annual fee, so compare offers to find a card with a low fee.
Annual fees are the only fees you should pay. If you are offered a card with a monthly or weekly fee, with an "insurance policy," or with an application fee, turn it down. The issuer is predatory, and will pump you for money. The issuer may also be breaking the law: Weekly and monthly fees are only unethical, but asking for money before a loan is granted is illegal. If a credit card company asks you for an application fee, notify the financial authorities.
How long will I need to own a secured credit card before I can get a regular credit card?
You will need to prove your creditworthiness. You can do that by seeing that the credit card company gets all your payments on time and taking steps to improve your credit rating. Most credit card companies will want to watch for a year or so before they offer you a regular credit card.
To make the transition from a secured to an unsecured card move smoothly, use your credit well. Make small purchases regularly and pay them off in full every month. Pay all your bills on time scrupulously, setting up automatic payments with an online banking account if getting bills in the mail on time is a problem for you.
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