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4 Myths About Secured Credit Cards

[Friday, June 15th, 2018]

Secured credit cards are enjoying a boom in popularity, thanks largely to credit-shy Millennials who are finding that using them is a good way to establish a credit score if they’ve never had a credit card before.

Still, many people don’t know exactly what a secured credit card is, or how it’s different from a regular credit card. If you’re one of them, read on to find out the truth behind four commonly held secured credit card myths.

1. They’re not “real” credit cards. Let’s start here with what most people think of as a “real” credit card: an unsecured credit card. This is a traditional credit card, where you get the card without putting any money down, charge a purchase to the card, and then pay it off later.

With a secured credit card, you put down a deposit that acts as collateral in case you default on the debt. The amount of that deposit will be your credit limit. That’s the only difference between the two types of cards. They’re both “real” credit cards—but one is secured, and one is unsecured.

2. They’re only for people with bad credit. Yes, folks with poor credit can get a secured card and rebuild their credit score by using it. But there are plenty of other reasons to get a secured card, including to establish credit in the first place, or to ensure you won’t get into debt that you can’t pay off.

3. They have high interest and fees. In general, credit cards for folks with limited or no credit, or with bad credit, tend to have higher annual percentage rates (APRs). But secured credit cards don’t necessarily have higher interest rates than unsecured cards. In any case, if you pay your entire balance off each month by the due date, you’ll never have to pay interest anyway.

As for fees, reading the terms and conditions thoroughly can help you avoid paying any penalties or other fees you don’t want to pay.

4. They’re a last resort. On the contrary, a secured credit card is often the first type of credit card a person applies for. They are an excellent way for someone new to credit cards, and therefore with limited credit or no credit history, to establish their creditworthiness.

See also

Q: The 3 Best Options For People With Limited Credit

If your credit isn’t perfect, you aren’t alone. Many people struggle with limited, poor, or even no credit. The reasons for having below average credit vary, but the end result is the same: difficulty being approved for a credit card, an auto loan, a mortgage, or an apartment lease.

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Q: No Credit, No Problem: The Beginner’s Guide To Finding The Perfect Credit Card

Getting a credit card can feel like a chicken-or-the-egg situation: in order to get one, you have to have good credit. But in order to achieve a good credit score, you need to have a credit card.

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Q: Start Your College Student Off Right With Credit

If you’ve got a child at home who’s getting ready for college next year, or who is in college now, you might be wondering how best to help him or her establish a credit history and get a credit card.

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Q: Top Student Credit Card Perks to Look For

Getting your first credit card is a milestone. However, sometimes it can be difficult to be approved for a card when you don’t have any credit history.

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Q: 3 Things You Need to Know About Credit Cards

If you’ve reached a certain age and level of financial maturity, you may think you already know everything there is to know about credit cards. But there are a few things that even the most experienced credit card user may not know. Knowledge is power, and when it comes to your finances, the more power you have, the better. Here are three things you might not know about those powerful pieces of plastic you carry in your wallet.

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