Secured Credit Cards: What, Why and How

Finding yourself in a position of having poor or even no credit is not an ideal situation to be in, and can present some obvious problems, particularly when it comes to obtaining a loan or line of credit. Your credit score is one of the primary factors that lenders will look at when determining if you qualify for financing, so optimizing your score is important.

These days, it is not uncommon to have poor credit due to any number of reasons. Fortunately, there are some effective steps that can be taken to either obtain a loan or credit card with a less than perfect score, as well as improve your rating rating fairly quickly and effectively.

One particularly valuable tool that fits both these scenarios is the Secured Credit Card. A secured credit card can provide the borrower with a line of credit similar to a regular card when their circumstances prevent them from obtaining a regular type credit card. These cards are also very effective in beginning to rebuild your credit and move to a place where you can be approved for a higher limit card or another type of loan.

How a secured credit cards functions is fairly simple, and has some similarities to a secured loan. To obtain one, the borrower must make a cash deposit into an account associated with the card. The amount deposited becomes the credit limit of the card, as well as playing the role of collateral. This secures the card and provides the lender or credit company with extra security. For example, if the borrower chose to secure the card with a deposit of $700, the card would then have a limit of that amount. Once that occurs, the secured credit card functions much like a regular credit card. The user can make purchased with the card and then proceed to make their monthly payments.

The benefits of a secured version card are clear. First of all, if you are unable to obtain a regular version because of bad credit, this enables you to still have a card, which is virtually a necessity in this day and age. The credit company is backed by the security deposit so they know they will not be left hanging by unpaid bills.

The second useful benefit with these cards is one you should take into consideration if you are looking to re-establish a strong credit rating. A secured credit card will enable you to have access to a line of credit that you might not otherwise have. You can then begin to make purchases and make on time payments which is a very effective way to rebuild your rating. These cards are typically available for a deposit / credit limit of anywhere between $300 and $10,000, so there is a nice range that should meet the needs of most borrowers. Once you have made timely payments for a period of time, your credit score will improve, and you will be able to get a standard credit card or other forms of financing.

Finding financial companies that offer these cards should not be too difficult. Although not every bank or lending agency will make them available, the majority of them will. Your local bank may be the best place to start your search, particularly if you have a long term relationship with them or have done business with them previously. There are also many agencies that provide online tools and resources that enable you to apply for these types of programs. Many internet locations dealing with poor credit or lending will have these available, or a simple online search will turn up some options.

Your credit rating will not play a role in being accepted for a secured credit card, since the cash deposit serves as collateral. So they are a great option for borrowers with credit issues that need a card or are looking to improve their credit for future lending.

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