What is a secure credit card and what do you need to know in 2019?

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Secured credit cards are a good way for consumers with little or no credit, or looking to rebuild their credit, to gain access to plastic, giving them the ability to build a better credit profile.

Secure cards are more common than you might think. An Experiential
(EXPGIE) A study of Americans who own credit cards shows that 32% of them have had a secured credit card, and 31% say that a top reason they own a credit card is to build a credit card. credit.

This is exactly what a secured credit card does, and creating credit with a secured card is one of the main reasons why so many people – especially young financial consumers – use secured cards.

What is a secured credit card?

A secured credit card allows people with poor or no credit to get a credit card after making an initial deposit.

Overall, a secure card allows users to get better credit by making payments on the card on time after making purchases.

According to FICO
(FICO) – Get the report from Fair Isaac Corporation , which calculates consumer credit card scores, 35% of those calculations are based on timely debt payments. This gives secure card users the ability to create a higher credit score by making their monthly card payments on time, with no late payments and no missed payments.

Once you are approved for a secured credit card, the deposit requested by the card provider will likely be equal to the amount of credit given to you on the card. Basically, the card issuing company withholds your deposit as security, in case you fail to pay your card bill.

This cash deposit should work in your favor. Since you are depositing a deposit, any repayment risk to the card provider is decidedly in the “low” category.

This should increase your chances of being approved for a secured credit card.

Seven things to know about a secure card in 2019

Secure cards are similar to traditional credit cards, but with a few differences. Let’s see how they work with these seven qualifiers:

1. You must be approved for a secure card

Like credit cards, you must apply to get one. Your job is to review the best secured credit cards and choose the one that meets your standard needs (low fees, reasonable minimum deposit – between $ 200 and $ 300 seems to be the industry standard, and solid customer service is at the top of that list.)

2. You must link the card to your bank account

Once you are approved for a secure card, you will need to link your card to your bank account. This means securely providing the card provider with your bank, bank routing number, and checking account number. You will need this to provide the necessary cash security deposit.

If you can’t make a lump sum payment for the full amount, don’t worry. Many secure card companies allow you to make regular installment payments to meet your security deposit obligation.

3. You will pay a higher interest rate on secured credit cards

Normal credit card interest rate ranging from 0% (for introductory offers) to between 12% and 24%, depending on the card user’s credit score. This is not the case with secured credit cards, which can carry interest rates of 27% or more.

Why the high rate for secure cards? It’s simple, really.

Creditors see people without credit or with poor credit as having higher credit risk and therefore charge them more for approval of a card. It is the responsibility of the card user to pay their bills on time, stay under the credit limit and be careful with the use of their card. Do all of that and you’ll end up switching to a traditional credit card, with lower interest rates.

4. You will be monitored by the 3 major credit bureaus

Secured credit cards differ from debit cards or prepaid credit cards in several ways. One big difference is that with a secured credit card, the card provider will share your account history and monthly payment history with the three major credit reporting companies – Experian.
(EXPGIE) , Equifax
(EFX) – Get the report from Equifax Inc. and transunion
(UTR) – Get the TransUnion report .

Keep this in mind when using the card and make sure you make those monthly payments on time. The last outcome you want is a bad credit score because you missed a payment or made late payments on your secured card.

Conversely, if you make your payments on time, you will probably have a great time seeing your credit score increase.

5. Start by making small purchases on your secure card.

The goal of any secured credit card is to use the card sparingly and most importantly to pay your monthly bills on time. Your plan of action on this front is to make smaller purchases when you get your card – think about $ 10-20.

In doing so, and paying your entire monthly bill, you are doing two wonderful things that will help improve your credit health: you will avoid large interest rate payments, and you will not have a card balance. The credit reporting agencies will love you for it.

6. Pay attention to fees

You will have to be careful with the fees with secured credit cards. For example, a secure card may have a cash advance interest of up to 27% of the money you withdraw (therefore, it is advisable to avoid withdrawing a cash advance from a secured card). you pay.)

Plus, late fees can reach $ 38 with secured credit cards. Therefore, focus on the fees when looking for secure credit cards.

7. You can get a higher credit limit with on-time payments

Secured credit card providers will reward customers who pay their bills on time.

For example, a card provider may increase your line of credit by $ 200 after you’ve made your first five or six months of payments on time.

Switch from a secure card to a regular credit card

It is quite realistic to expect a “downgrade” to a regular, unsecured credit card from a secured credit card.

This usually happens after an extended period of on-time card payments and staying well under your card’s credit limit. Overall, expect this period to take around two years, plus or minus a few months, depending on the card issuer.

Being eligible for a regular credit card can even happen without you having applied for one. After a long period of credit worthy card activity, your card provider may surprise you with an unsecured card offer.

If, after 18-24 months of regular and on-time secure card payments, you feel like you’ve won a battlefield promotion for a traditional credit card, don’t hesitate and ask your card provider .

A phone call or an online chat will suffice – you don’t want to apply for a regular card and take a credit note to do it. The card provider’s customer service representative can likely give you an idea of ​​eligibility or make a plan for you to switch to a regular credit card.

Once you are approved for a regular, unsecured credit card, you can close your secured card and any money deposited into your account will be returned to you.

There’s really no good reason to keep a card secured when you’ve been approved for a regular credit card, although you can if you want to. Considering the high interest rates, think twice before using a secured card if you have been approved for an unsecured credit card.

A great way to build credit

Secured credit cards are popular with consumers (especially younger ones) for good reason.

Secured credit cards allow consumers with little or no credit to have a strong credit rating, while enjoying the many benefits of a traditional credit card.

Having said that, we can’t say it strongly enough – to get that good credit you have to pay your monthly bills on time and you have to use common sense in using the card.

If you master these tasks, you will be switch to a regular credit card before you know it.

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