Secure Credit Cards

What Are Secure Credit Cards?

A secured credit card or a bank secured credit card refers to a type of card that requires you to have/own a deposit account that maintains a cash balance with the credit card supplier.

This cash balance (which will have been pre-agreed with your credit card supplier), remains with your credit card issuer or any banks that offer secured cards and acts as security for your lender in the event you should default on payments. It essentially becomes the line of credit for the account.

With these types of cards or bank secured credit cards, or even prepaid credit cards, you will be expected to deposit a sum of money equal to the amount of credit you will want to use. For example, if you deposit £1000.00 in your account, you will be extended a line of credit anywhere from £500.00 - up to £1000.00.

In some instances, lenders will reward responsible use of secure cards by topping up your line of credit without you needing to increase the amount of your deposit. You could therefore end up having a higher credit limit than your actual deposit.

As you can see, secure cards does not offer you any real line of credit and as such, they are not really credit cards but more like prepaid debit cards - as they're often called.

Secured Cards For People With No Credit History

Secured cards may be used by many people for a variety of reasons. One such reason is the fact that credit card credit debt is increasing. Whether credit card debt is incurred through inappropriate use of credit card credit or through unforeseen circumstances, the fact remains that credit card debt can and will ruin your credit card rating.

This is often to the extent where many people find it extremely difficult to obtain any more of the commonly used unsecured credit cards, despite having paid off their credit card debts. This is because once your credit card score has been injured, it takes time and careful attention to repair it.

This is where secure credit for people with adverse credit history or poor credit rating can present the opportunity to obtain a line of credit - (allbeit, a debit card scenario) and to start to actively re-build credit rating. By using a secured card responsibly, people with poor credit rating can not only control their spending but can take a disciplined approach to making timely credit card payments and managing their credit card accounts more effectively.

With appropriate use over time, secure card use provide a means of remedying any damage done to your credit card rating, thus improving your credit card standing and credit score.

A second reason why some people might apply for a secured card or bank secured credit cards is for ease, convenience or simply because they don't want the hassle they associate with unsecured credit cards such as making credit card applications; checking credit card bills; or even the mere fact that some people are just not comfortable about borrowing credit card credit.

They may naturally feel concerned about credit card indebtedness and for this reason may choose to apply for a secured credit card. Whatever your reason though, these credit card types enable you to set clear limits on your spending, thereby providing a safety net against over-spending and credit card debt.

Both secure and prepaid cards are good college student credit card options, especially where no prior credit card history exist.

Applying for a credit card that is secured is sometimes the only way forward for people who are finding it difficult to obtain credit. As well as being a good way for those with no credit history to begin the process of establishing a credit history, a credit card that is secured can offer an ideal way of rebuilding your credit history especially after a major life event such as a serious illnesses, a divorce or job loss.

In any event, a secure credit card offer the advantage of establishing or re-building either a 'no credit history' status or a 'negative credit history. This is by virtue of the fact that credit card companies report regularly to the major credit reference agencies or credit card bureaus, updating them on your credit card borrowings and repayment activities, thus helping you to establish a postive credit card rating.

There is a moving trend among lenders away from this type of card, toward unsecured credit cards. However, you will find that there are still some lenders offering them. Just keep in mind that some lenders will tend to favour people with no credit history, over those who have poor credit rating. This does not however mean that you should limit your efforts in finding the best secured credit card offer you can.

Secure Credit Card Fees And Conditions Attached To A Secured Credit Card?

As you have seen, applying for secured credit cards offer you the option of obtaining a credit card you might otherwise not be able to get elsewhere but what will it cost you fee-wise for the privilege?

As you migh expect, Fees and service charges for the benefit of secure credit cards will often exceed those for un-secured cards. You will need to check with your potential card supplier for their rate of credit card fees, charges and the amount of the secure card deposit they will require.

Since both fees and the amount you will need to deposit for a secure credit card will vary from one credit card supplier to another, it is also a good idea to shop around to find the best secured credit cards on offer. This way you can at least be aware of what percentage of your secure credit card deposit will be apportioned to fees and charges.

If you apply for a secured credit card, you will still be required to make regular payments in very much the same way as you would for an unsecured credit card. In contrast to an unsecured credit card though, should you fail to make a payment on your secure credit card your credit card provider can recoup the cost of any transactions you have made from your secure credit card deposit account.

In general though payments are only recouped from your deposit upon closure of the account so missing one or two payments don't automatically mean that your account will be debited. However, you will incur interest fees on missed payments which could end up costing you dearly and could even possibly exceed your actual credit limit on your secure credit card.

The risk to secure credit cards users are clear to see. If you default and you do not remedy the situation within the timescale as set out in your secure credit card terms and conditions, you may not only lose your deposit but accrue further credit card debt. Be sure to read the terms and conditions of your secure credit card agreements.

The content on this site is purely for information purposes only and is not intended to replace your seeking professional financial advice.

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