The Pros and Cons of Secured Credit Cards

DENVER - April 8, 2014 - PRLog -- If you have credit problems, or no credit, it can create a world of financial problems and take years to clear up. The best way to clear up bad credit, of course, is to get credit and keep it in good shape, but the Catch-22 is that it’s very hard to get credit if you have bad or no credit. For many, secured credit cards can be a good solution to this problem. But like any credit-rebuilding plan, there can be pitfalls. Let’s look at a few of the benefits and drawbacks of secured credit cards.

The Secured Credit Card

Unlike a normal, unsecured card where you are offered a spending limit based on your credit history, with a secured card you need to put up a security deposit as collateral against the card in case you don’t pay it back. The card issuer gets to keep this money if you fail to pay your bills. While you can use the card just like any other card, the limit will generally be low—between 50% and 100% of the security deposit.

It should be noted that secured cards are not prepaid cards—you are putting up a security deposit against your balance, not loading the card with money. Prepaid cards are like gift cards: you put a certain amount of money on the card and you can use it till the money is gone, then you choose whether to reload the card. With a secured credit card, you establish your limit with the security deposit, but you are still required to pay back the amount you purchase on the card. Feel free to contact us at http://www.360creditconsulting.com/contact-us/ and we'll help get you into the Secured Credit Card.

Benefits of the Secured Credit Card

There are many benefits to the secured credit card if you are looking to rebuild credit. Here are a few.

1.You can usually get a secured card even if you can’t get a normal, unsecured card. The security deposit gives a sense of confidence to the card’s issuer, in case you fail to meet your payments.

2.Secured card companies usually report faithfully to credit bureaus, meaning that the more you make payments on your secured card, the more you will build good credit.

3.You don’t have to worry about collections agents calling if you default. Should you fail to make payments, your credit card issuer just takes your security deposit instead (and will often cancel the card).

4.You can sometimes earn interest on the security deposit. Some secured card companies will keep the security deposit in a savings account which builds interest. This interest, if any, will belong to you so you can actually make a small amount of money while rebuilding your credit!

The Downside of Secured Credit

Secured credit cards are not all gold, either. There are some drawbacks about which you need to be aware.

1.It may be tough for you to come up with the amount you need for a security deposit—typically $500 to $1000 or more. Even if you can come up with the required amount of money, sometimes it might be better to put it towards your outstanding debt rather than getting a new card.

2.You don’t get your security deposit back until and unless you close the card in good standing. Pick your issuer carefully to make sure they are reputable and won’t give you trouble when the time comes.

3.Raising your credit limit often requires adding to your security deposit. This can get to be an expensive prospect.

4.Most secured cards also have fees above and beyond the security deposit. These fees can be for applications and an annual fee to maintain the card, both of which increase the cost of having the card.

5.High interest rates are another issue. Secured cards tend to have much higher interest rates than unsecured cards, so you should be sure to pay your balance in full every month.

Despite the downsides, however, secured cards can often be a good way to rebuild credit. Just be sure to pick a reputable bank so you fix your credit rather than fighting against losing a security deposit to a predatory company! For more Credit Education visit us at http://www.360creditconsulting.com

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