Secured credit cards are often marketed to individuals who have no or bad credit. While they look like regular credit cards, they require a security deposit. Secured credit cards offer an affordable and safe way to build or fix credit. While a deposit is required, a person will not lose money if they make their monthly payments on time. Subprime unsecured cards can prove risky and expensive for individuals with fair or poor credit.
Here are the significant differences between these cards and why it is a smart move for some individuals to build or fix their credit using a secured credit card.
It’s Important to Fix Your Credit Score
From the time most people come of age, they are offered credit cards. While some people use the opportunity to build a better financial future, others encounter hardships and end up with a tanked credit score. A low rating often hurts those who are already hurting – good credit is necessary to rent an apartment, lease a car, or get loans.
Five Reasons to Get a Secured Credit Card
There are many ways to rebuild a financial reputation, and secured cards are a good way to start. With this card, reports of payment history get sent to the major credit bureaus. By paying off the account on time, an individual can eventually receive approval for an unsecured card.
Here are five other good reasons to get this type of payment system:
- High chance of approval – when you can’t get any other type of credit card, try a secured card. They are specially made for those individuals who aren’t able to obtain other sources of credit.
- Low interest – These cards are cheaper to maintain. Although there is a security deposit, the lender will usually return the deposit after a year or two, if the account is maintained. You are charged late fees, but the interest is much lower than a regular credit account.
- Better budgeting – You’re spending limit is the same amount as your deposit, preventing you from spending more than you have.
- Less chance of ending up in collections – If something happens and you can’t pay off your regular account, the credit lender sends it to collections. This type of card has a security deposit, so if you can’t make your payment, the bank uses that money, saving you from a confrontation with collectors.
- Convenience – Having a credit card makes life simpler. You can easily buy things online and in stores without having to worry about cash.
The most important reason is that these accounts rebuild credit, giving you a chance to start fresh. Once you can successfully prove that you are able to handle a secured card, banks and other institutions will likely offer you more. There are cards that give you cash back, points, and even airline miles. Only those who have good scores can receive those benefits.
When to Avoid Unsecured Credit Cards
Individuals who have fair credit may have seen advertisements for or are offered unsecured credit cards provided to the subprime market. These cards will not require an individual to put down a security deposit. These subprime credit cards often have high-interest rates and high annual fees. In some cases, the lender may disguise the cost by billing the yearly fee spread out monthly. Some of these cards don’t have a grace period, which means that interest is charged on all purchases no matter when they pay the statement in full.
Bankruptcy Attorneys Can Help
If your “bad” credit or debt is ruining your daily life, there are options. The best thing to do is contact an experienced attorney, like the ones at E. Orum Young. With more than 35 years of experience, their bankruptcy specialists can help you come up with a plan to manage your debt. Call today for a free consultation at 318-450-3192.