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What Makes a Secured Credit Card Secure

[Thursday, July 10th, 2014]

Many people may not be familiar with the term secure credit card. If it’s your first time stumbling on secured credit cards, you may wonder what they are.

While they might sound like cards that offer extra security to users, this isn’t actually the case. A secured card, rather than offering cardholders the reassurance of extra security, is designed to offer creditors extra security.

Why? Because secured credit cards are targeted to people who have poor or limited credit. These customers often have a hard time being approved for a credit card because of a rocky credit history. Having a low credit score can make it difficult to get a credit card, and therefore difficult to improve your credit score.

Enter the secured credit card.

These cards require users to put down a lump sum as collateral against the money they are asking to borrow. After all, using a credit card is just another way of borrowing money. Only instead of asking a relative for help, you are asking a bank or a credit card issuer to lend you money.

Having this money as collateral guarantees the bank that they will not lose money on a customer with bad credit. It may seem unfair, but a person with bad credit is not a good risk for a credit card issuer. So, by asking for an amount of money up front, they are protected.

Getting a secured card means putting down anywhere from $200 to $2,000. The amount of collateral will usually equal the amount of the credit limit issued. After a certain amount of time, the card issuer may raise the credit limit without asking for another collateral payment. However, the issuer will hold on to that collateral for the life of the account.

This means you might give a secured credit card company $500 to open a credit card account. Let’s say you then use the secured credit card to purchase $300 worth of clothing. You will get a bill from the credit card company for $300, even though they have your original $500. You still need to pay that $300 balance in full, on time.

While this may sound like a raw deal, consider this: using a secured credit card is one way to get your credit score back in good shape again. If you’ve been turned down for regular credit cards, a secured credit card is a gateway to a better credit score, and being welcomed back into the world of credit.

Once your credit score is back on the good side of things, you can apply for a regular credit card, close your secured card, and get your deposit back.

So while secured credit cards aren’t necessarily safer for consumers, they are very useful in the right situation. If your credit has seen better days and you’re having trouble being approved for a credit card, a secured card may be the answer for you.

See also

Q: Here’s Why Secured Credit Cards Are So Popular Right Now

Over the past several years, secured credit cards have enjoyed a boom in popularity. And yet, some people still don’t know what they are, or how they’re different from other types of credit cards. So what’s the reason behind the newfound status of secured credit cards? First, let’s go over what a secured card actually […]

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Q: 3 Steps To Getting Your Credit Back On Track

Having bad credit can feel like you’re in a sinking ship without a life jacket. It’s a scary feeling, and it can be very isolating. The shame associated with having poor credit doesn’t help; you may feel guilty, and that you’ve done something wrong. But this may not be the case at all. Many people’s credit suffers through no fault of their own.

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Q: Why Secured Cards Are The Hottest Trend In Credit

Once upon a time, not many people had heard of secured credit cards. And even those who had heard of them weren’t so clear on what exactly they were.

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Q: The Best Cards for Improving Credit

If your credit has suffered due to a job loss, a divorce, illness, or any other circumstance, you might be wondering whether you’ll ever be approved for a credit card again.

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Q: Two Cards for People Who Can’t Get Credit Cards

If your credit is poor and you find yourself getting turned down for credit cards again and again, you may worry that there is no way you will ever be able to get a credit card. Maybe a divorce, an illness, or unemployment left you with a bad credit rating. Or maybe you are young and don’t have any credit history.

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