What Are the Advantages and Disadvantages of Secured Credit Cards

A secure the credit card is usually considered by a person who is having problems getting a regular credit card. While a regular credit card is preferred to a secure credit card, getting one maybe a problem to someone who has no credit history. In such a circumstance getting a secure credit card may be the only option to get your foot in the credit building process.

A secure credit card is different from regular credit card in the sense that you are required to make a security deposit for the credit card. If you are getting a credit card with a credit limit of $500 and you will be required to make a deposit of $500 or even double that amount of money into an account that is linked to the credit card. In case there are any problems with repayment of the balance on the credit card in the future the credit card issuer can reach into the account take that money as payment. Apart from the safety deposit you can use a secure credit card pretty much as any other card by making purchases and paying the bill on time.

Advantages of a Secured Credit Card

· It can be used to build a credit history. Unlike a prepaid credit card secured credit cards are not be reported to credit bureau just like any other regular credit card.

· They are easier to get than a regular credit card. Because you’re making a security deposit for the money that you are likely to spend on the credit card you are offering the lender guaranty and security against default because of which they are more liable to approve your credit application.

· Even in the case of default the lender can use the money in your security deposit to recover the money you go on the credit card balance. You will not have to worry about the balance being sent to a debt collection agency.

· Even if you default on the credit card payment negative information will not be reported to the credit bureaus as the lender will simply reach into the security deposit in order to recover the payment.

· Sometimes you can even on money on the security deposit as a certain service providers place the deposit into an interest bearing savings account.

Disadvantages of a Secured Credit Card

· Coming up with the deposit for a secured credit card in the difficult. While certain secured credit cards require you to make a deposit that is equal to the credit limit, some may require you to make a deposit that is double the amount. So coming up with $500 or $1000 may be a tough choice to make.

· There will be extra fees required in order to process the application for a secured credit card. Having to pay application fee, processing fee and annual fee to have a secured credit card might make it a slightly expensive proposition.

· The interest rate on a secured credit card are usually not as competitive as a regular one. The reason for this is quite simply that a secured credit card is usually taken on by a person that has a problem with their credit information. They are either lack credit history or are trying to rebuild one. In either case the lender deems it a high risk proposition to give a secured credit card and spite of the security deposit.