How Do Secured Credit Cards Work?

Learning how secured credit cards work is very important if you are thinking of applying for one. It’s likely you’ll be approved, as these types of cards offer the highest approval of all credit cards. But we want you to fully understand the “secured” option and how it all works. Let’s learn the basics.

What Is a Secured Credit Card?

A secured credit card is an actual credit card. But it’s also a deposit card. Essentially, you make a cash deposit when you open the account. That deposit usually represents your credit limit. It’s a low-risk situation for the issuer. If you don’t pay what you owe, the money is already in place to cover your nonpayment. It differs from a debit or prepaid card in that way.
Actually, with a secured credit card, the issuer will share your activity with credit reporting agencies (Experian, Equifax, and TransUnion). That doesn’t happen with a debit or prepaid account. Secured credit cards are designed for consumers who want to build credit for the first time or repair bad credit. This kind of card can help you establish a credit history. It can also help you show better repayment practices if you’re trying to raise your bad credit score.
Be prepared to deposit a minimum of $200 in your secured credit card account.

Secured vs. Unsecured Credit Cards

An unsecured credit card is a traditional route. But these types of cards can be difficult to obtain if you have bad credit or no credit yet. Unsecured cards don’t require a deposit. Naturally, that makes them riskier for the issuer.
Secured credit cards can be great for consumers with bad credit. Credit card companies will attempt to lure people by offering credit to those who have poor credit scores. Note the high fees and rates, though.
Oftentimes, secured credit cards are better than the high-fee unsecured path. Especially if you’re rebuilding your credit and working toward long-term financial goals like home, auto, or better interest rates. Your good repayment behavior will be reported, and you’re less likely to accumulate more overwhelming debt.

How Do Secured Credit Cards Work?

How Does a Secured Credit Card Work?

They work just like an unsecured account. Once you make the deposit, you can use your secured credit card anywhere credit cards are accepted. You can even shop online. Use the secured card to build your credit or repair it. Pay with your card, and then make on-time payments.
Consumers will incur interest if they carry a balance. And some secured credit cards make you pay annual fees. Overall, it’s important to be responsible with a secured credit card. Your repayment or nonpayment will reflect on your credit report.

How Fast Will a Secured Credit Card Improve My Credit Score?

Most find that it takes about a year to make a real difference. After a year of using a secured credit card responsibly, perhaps you can qualify for an unsecured one. If you’re looking to see results faster, WJA offers an aggressive, alternative approach to traditional credit repair. We’d love to talk to you and determine if you’re a good fit for our program.

Secured and Unsecured Credit Cards – Which Is Better?

It’s more about which is better for you, wherever you are on your credit journey. You may be denied an unsecured credit card right now. But you still need to build credit or repair your bad credit. That’s where the secured credit card option serves you well.

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