Selecting the type of credit cards should necessarily include considering secured credit cards. As a matter of fact, most people find these cards to be the best option available. Many times these cards are obtained by people who have a bad credit record or who are having difficulties in obtaining a new credit card. Since the card includes responsible financial spending, it is considered to be very useful for college students or teenagers.
Secured credit cards
If you are under the requirement of rebuilding your credit, then secured credit cards are the best way to get this done.
However, there are certain aspects which need considerations which are mentioned as follows:
-Annual fees are applicable on these cards
-Higher interest rates are charged on these cards
-Most of these cards will allow $300 - $500 limit for starting out
-Secured credit cards may not be considered as a long term solution to credit issues
The functioning of these cards is similar to that of checking account debit card. The difference is that with these cards there is no savings or checking account associated. A deposit is made with the card issuer and which ultimately becomes the spending limit of the cardholder. When the amount spent on purchases reaches the amount deposited, you will be required to deposit more money in order to use the card further.
Another feature of secured credit cards is that they are not charged with annual percentage on the deposit made. This means that the cheque can be deposited directly within the card in many ways. You will know exactly how much you will be paying with these cards. They can also be used for online shopping purposes.
The drawback of secured credit cards is that you will have to deposit money in advance so as to make purchases. Although, this can also be rendered as an advantage as you will be able to control your debt as well as building a solid credit base however, in an emergency situation, this aspect can be a disadvantage.
An important thing related to these cards is to make sure that they are reported with the credit bureaus as a credit card rather than secured credit cards. The reason behind this is that the purpose of obtaining this card is to build your credit history and if the credit bureaus are not informed about your regular payments, then the point of getting this card is lost.
Most of the credit reporting companies simply docks those who have secured credit cards. The reason is that they consider such cardholders to have bad credit history. Even if you have a secured card, get it reported as a credit card. There are many card issuers which reports to the credit bureaus on a monthly basis without noting that the card is secured or not through the most effective techniques. Secured credit cards can come out to be the best option as they allow purchasing through the web or through phone as well as travelling without leaving you into financial discrepancies.