Secured Credit Cards: Cards for Bad Credit

Two Great Options:

Unsecured cards:
These are just like normal credit cards – except that interest rates and fees are much higher than the market rate. Even the credit limit on these cards isn’t very high. Usually, your payment performance on the secured cards is reported to credit bureaus. That can help improve your credit rating. Also if the payment pattern is good, you may be eligible for a higher credit limit.

Secured cards:
In these kinds of cards, you need to deposit a certain amount of money with the bank. This, in turn, will determine your credit limit. All the other features and functionalities are exactly the same as that of a normal credit card. If you default on the payment, the money in the savings account is used to refurbish the deficit. Also, many banks will not report to the credit bureaus so be sure to check this factor. Else you may end up paying a lot – for no reflection in your credit history! Also, interest rates and fees are higher on secured cards as compared to normal credit cards. Let take a quick look at how secured credit cards and how they work.

Secured credit cards: cards for bad credit

Ever been turned down by credit card companies because of bad credit – secured credit cards can be your solution. People with bad credit usually suffer rejection while applying for credit cards. Not only do they have to cope with the pile of existing debts, but they also cannot seem to book hotels or rent cars when they need to. In such cases, having a secured credit card can make all the difference.

What are Secured Credit Cards?

A secured credit card is obtained after depositing some money into the account. The credit limit on the card is determined based on the amount deposited. It works pretty much like a savings account, except for the fact that you can use a secured credit card to book hotel rooms or rent a car at your convenience. Also, in case you default in payment, the charges are taken from the amount deposited. One major drawback is that most of the secured credit card companies do not report payment activity to the credit bureaus. This can mean having little or no effect on your credit rating.

A secured credit card can be your ticket to a better life, considering that you’re steeped in debt. However, in the excitement of getting this card, you should not forget to keep a close watch on a few essentials.

• Check out the offers: It pays to do a bit of research on your own before going ahead for a secured credit card. Nowadays there are plenty of secured credit card issuers who provide low-interest rates and a zero Annual fee as well.

• Charges applicable: Be sure to check all the charges applicable. You can read all about it in the product literature. Many times people have exhausted their credit limit just because of the numerous charges involved.

• Minimum deposit: Ensure you know what will be the minimum amount to be deposited. The credit limit on the card will depend on this amount and will either be exactly the same or will be a percentage higher than this amount.

• Not every bank offers secured cards: Nowadays there’s been an increasing trend in banks supporting unsecured credit cards vs. secured ones. The primary reason being that unsecured cards are charged higher interest rates and fees thereby fetching banks more money. However, shop around and you’re sure to find a bank that does offer a secured card.

One of the major drawbacks of secured credit cards is the chance of getting extorted. The reason being that banks know you’re in bad shape as far as credit goes and they try their best to take advantage of the situation. It's a rarity when you find a bank that is good enough to declare all fees upfront and not overcharge you.

Here are some of the scams you need to be wary of:

• Insurance claims: Sometimes a credit card company will make it mandatory for you to purchase their insurance policy along with the secured credit card. Read the fine print carefully before committing.

• Toll "free" number: Many times there will be a number in the ad that will seem like a toll-free number. However, in reality, this can be a costly call to make. Many calls charge between 2 to even 50 dollars! Be sure to check out the rates before you even make that call.

• Eligibility: Most of the advertisements for secured credit cards make eligibility seem as easy as pie. However, it’s not as easy as you think. Sometimes the entry criteria for getting a secured credit card are so stringent that you may never qualify for the card! Be sure to check these criteria out before applying.

• Annual fees: Most of the time a secured credit card will have an associated annual fee. However many credit card companies are willing to waive it off. Also, be sure to check for the interest rate on any of the secured credit cards.