5 Things You Must Know Before Applying For A Secured Card

5 Things You Must Know Before Applying For a Secured Card
by Joy Mali

Today’s society is strongly based on credit which can be both convenient and a nightmare. If you have established good credit then you can breeze through life. However, if you have not established any credit at all, or have bad credit, then you may find it extremely difficult to buy new items, get new loans, or even make simple transactions such as renting a car, reserving a hotel room or plane ticket, etc.

If you have bad credit, you’re not alone. Federal Reserve figures released in 2010 reveal that, on average, each American carried $7,800 in debt with approximately 33% of that being unsecured (mostly credit cards). More and more Americans are falling into bad debt due to the struggling economy which also works to hinder those wanting to initially establish credit. If you cannot obtain unsecured credit cards due to having no credit or bad credit, you may want to look into secured credit cards in order to build or rebuild your good credit history. However, there are some things to know about credit cards that are secured. Here are five of the most important.

1. How Secured Credit Cards Work
   
   Deposits are placed with the issuers of secured cards which act as the security for the amounts charged. Most secured card issuers require a deposit of between $300 and $500 (although varying amounts exist) to obtain an unsecured credit card. You can make purchases up to the limit amount equal to the deposit. You make payments the same as you would with an unsecured credit card. If you make payments on time each month, you can eventually request to add to your deposit, thus increasing the charge amount. Some banks reward you with automatic credit line raises for making responsible payments.
2. Where to Get a Secured Credit Card
   
   If you are seeking a secured credit card and are a member of a credit union then you can ask if they offer them. Approximately half of the credit unions in the country offer such cards. They also tend to waive any required annual fees and offer better interest rates than traditional banks.
   
   If you are not a credit union member then you will have to search for secured credit cards at traditional lending institutions. However, not all banks offer secured cards and the sputtering economy has caused banks to steer further away from offering them. Those that still provide options for secure credit card users have commonly increased interest rates and fees as well as lowered available limits.
3. All Secured Card Issuers Are Not Equal*
   
   It is very important to shop around once you’ve decided to get a secured credit card because not all card issuers are equal. Interest rates, fees and other charges can vary greatly between banks. Some secured credit cards are very good and come with low fees and personalized service. Other lenders tend to take advantage of those with no credit or bad credit and charge higher rates and fees. Still others are considered extremely bad and charge high fees and rates plus require that applicants pay monthly insurance fees.
   
   Those who avoid shopping around and take the first card offered may find that interest, fees and other charges completely consume the deposited amount before making a purchase. The best options for secure credit card choices tend to be the bigger, more established banks.
4. Credit Bureau Reporting
   
   Building or repairing your credit is the sole purpose for obtaining secured cards and not all secured card lenders report your payment history to the bureaus which is an important step.
   
   Therefore, when researching secured cards, be sure to ask if the lender submits reports to the bureaus. If they do not, continue searching.
5. Using Secured Cards to Boost Credit Ratings
   
   It normally takes around a year of making good payments before you can gain access to an unsecured card. Unsecured credit cards are much more effective at building strong credit scores so long as they are paid on time.

Use secured cards only as stepping stones to build or repair credit. Do not carry a monthly balance, but ensure that it is paid off each month before the due date. Secured credit cards are great credit building tools if used properly.

More Information:

Joy Mali is an active blogger who is fond of writing articles on Credit Protection and educating people to take immediate measure if your card is lost or stolen before someone take advantage of it. Follow her on Twitter to know more on how to use secured cards to build or repair credit.

Source: http://www.PopularArticles.com/article455361.html