* Explanation of a secured credit card
* Secured vs. unsecured credit cards
* Ideal candidates for secured credit cards
* How secured cards help in building credit
* Tips for using a secured card wisely
* Drawbacks of secured cards
What exactly is a Secured Credit Card?
A little guy you might find hiding in your wallet, a secured credit card is like a trusty sidekick that can save the day! It can make your financial life easier, and it asks only one thing in return – a security deposit. This deposit forms the cornerstone of your credit limit, and, with time and regular payments, might just give your cardholder company the confidence to increase your limit!
Being ‘Secured’ versus ‘Unsecured’
In a world of credit cards, two types reign supreme: secured and unsecured cards. Like twins, they’re similar in many ways. You can use them for daily expenses, and they both expect you to pay at least the minimum balance per month. But here’s where they part ways. Unsecured cards roll on the red carpet for a security deposit, while the secured ones insist on one. The former relies heavily on credit score and income for approval.
Who makes a Perfect Match for Secured Cards?
Interested who are the prime candidates for secured credit cards? Well, if you’ve been having a tricky time getting an unsecured card or you’re a credit history newbie looking to build, the secured credit card might just be your knight in shining armor. Even those with bad credit score looking to doll it up could find this card handy.
Secured Card: Your Credit Fairy Godmother
Financial soothsayers (also known as credit scoring models) consider a bunch of factors before calculating your credit score. The secured credit card can be your secret weapon in boosting your credit status. Regular, on-time payments demonstrate your reliability, sending good vibes to those computing your credit score. Plus, being a different species from car loans or mortgages, having a secured credit card diversity in your credit realm and reflects positively on your credit mix.
Be Wise: Tips for the New Secured Card Holder
Becoming a secured card holder is just the beginning. It’s like getting a new pet; you need to know how to handle it wisely. So, the golden rule is applying self-control to your spending as the money isn’t directly coming from your bank account, making it easy to overspend. But, dare not hide it away in fear of spending – you need to use it to improve your credit score. Try keeping your balance below 30% of your credit limit, which, by the way, makes a good impression on the credit bureaus.
The Slippery Slope: Downsides of Secured Cards
While secured credit cards are a credit-building tool, they have their downsides. Firstly, they demand an upfront security deposit. Then there are the often tower-high interest rates, possible annual fees, and lack of perks like cash back rewards. Despite these, the right use of a secured credit card can pave the way to a rewards credit card.
In Conclusion
While understanding the nuances of secured credit cards may seem overwhelming, they can be the best allies for individuals looking to repair their credit scores or kickstart their credit journey. By using them responsibly, secured cards can be the financial stepping stone towards a bright fiscal future.
Knowledge is of no value unless you put it into practice. – Anton Chekhov
Now that you’ve gained an insight into the world of secured credit cards, it’s time to put this knowledge into action and make informed financial decisions.
