A Primer: Secured Credit Cards
If you have no credit to your name it can be pretty hard to get your hands on a credit card. Some credit card issuers would rather give a credit card to someone who just had a bankruptcy discharged over someone who has no credit history at all, and it can be incredibly frustrating for someone who is ready to hop right into the world of credit when there aren’t any issuers who seem willing to give them a shot.
Try a secured credit card!
A secured credit card is a card that you guarantee with a savings account, Certificate of Deposit, or some other type of deposit. Basically, it’s a surefire way to get a credit card in your hand without delving into the scary world of prepaid credit cards and all the fees that can come with them.
The money you deposit for the card acts as collateral. If the money is sitting in a savings account, the lender usually puts a hold on those funds so you can’t access them as long as they are the back-up source for the card. You’ll still earn interest on the money if it’s in an interest-bearing account (it should be), but you won’t be able to pull the money out and use it. It sits there as collateral for as long as you have the secured card.
You’ll get a credit card statement each month, and you’ll make payments just like you would with any other credit card. If you don’t pay off your balance each month then you’ll get some interest charged to your account. A secured card is just like a traditional credit card in most respects, except for the collateral.
We aint running a charity, pal…
So why are credit card issuers willing to give secured cards to people who have no credit, or to people who have a real mess on their credit report? It’s simple, really; with the deposit in place the lender knows they’ll get paid, even if they have to grab it out of the account. Make no mistake about it…the collateral balance will be snatched up by the credit card company if you don’t make your payments!
There might be extra fees involved if the issuer had to dip into your deposit account, so it’s better to make your payments on time. Besides, the whole point of getting a secured credit card is to build your credit up. If you don’t make payments on time then you’re not doing yourself any favors.
Secured cards usually feature relatively low available balances – around $500 or so – and sometimes the issuer will only ask for a portion of that balance as collateral. You shouldn’t depend on secured credit cards forever unless you have a moral stance against revolving credit accounts. A secured credit card should be a stepping stone to creditworthiness.
Improve your credit rating!
Make sure the company you get your secured card through routinely reports to the credit bureaus so you can improve your credit score as you use the card and make your payments on time. If you have a secured card for about a year and have never been late on a payment, you can feel confident in requesting an unsecured credit card from the issuer because you’ve proven your ability to repay. You may not start at a rock-bottom interest rate, but at least you won’t have to have some collateral in place for the new card.
A few Secured cards from the New Millennium Bank worth checking out:
New Millennium Bank Secured Platinum Visa®/MasterCard®
New Millennium Bank Secured Black Diamond Visa®/MasterCard®
New Millennium Bank Secured Gold Visa® / MasterCard®
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