Some credit cards can act as temporary secured loans
Rebuilding credit with secured credit cards
Secured loans can be a welcomed answer for consumers with credit problems. One form of secured loan is the secured credit card. A secured credit card is a card offered in which the consumer deposits money to their account and then their credit limit is the amount they deposited. It’s a great way for companies to safeguard themselves, because if the consumer tries to make a purchase more than the credit available, the charge is denied. They work just like debit cards and protect consumers from overcharging, and over-limit fees. The best thing about the secured credit card is that it helps consumers build or rebuild their credit. Normally after about a year of on-time payments, the lender issuing the card will offer the consumer unsecured credit cards.
Where to find a secured credit card
Secured credit cards are available from various lending companies. Consumers can do searches online and get lists of places that offer the cards. It pays to do research, however, because there are drawbacks to some of the cards. Some lenders offer the cards, but at a pricey application fee. They can also tack on monthly credit-watching fees and annual fees. A good secured lender will waive most of these fees. There may be a small annual fee and that’s normal, but they can vary drastically from company to company. Do some comparisons and find cards that offer the following:
- Low annual fees
- Reporting to all three credit bureaus
- Waived application fees
With the number of credit cards out there, there are many options. Consumers should never pick the first card they see, but rather do a good amount of research and find the card that costs least.
How much should be deposited
Most lenders require deposits of $300 to $500. The credit limit will then be dictated by the deposit or a small percentage above that amount. The amount a consumer deposits has no bearing on how they are reported to credit bureaus. The lending company reports the customer’s payment history alone. Some companies offer specials for depositing certain amounts, so consumers should look into the deals out there and choose the best one for them.
Banks and unsecured credit
In past years, banks were great places to get secured loans through credit cards. Today’s credit world is quickly changing and the trend in the market is for banks to cut back on secured cards and push unsecured cards with lower limits and higher interest rates and fees. For consumers with bad or little credit, however, these are not always an option. It’s best to apply for the secured cards, rebuild credit, and then move to the unsecured options. Anyone who is rebuilding after a life event, like job loss, illness or divorce, can benefit from the secured credit card.
Cautions with secured credit cards
There are some things to watch out for with secured loans. Howard Dvorkin, president of Consolidated Credit Counseling Services, referred to secured credit cards as “a Clint Eastwood movie-the good, the bad and the ugly. Some are good. They have low fees and treat customers as customers instead of cattle. The bad ones, though, take advantage and extort the clients because of their situations. Then there is the ugly, which are despicable. They will give you the card, but you have to buy this insurance policy for $55 a month.” There is a wide variation in credit cards out there, and any consumer in the market for them should be very careful. They should research various companies, read their terms and conditions, and then choose wisely.