All About Secured Credit Cards

With the rampant use of credit cards for almost all kinds of consumer transactions, it would be not surprising to know that there are currently a number of credit card products and types out in the market.

There are more people now who are treating credit cards like necessities. For these people, credit cards are must-haves in their pockets and wallets.

Why is this so? The answer is quite logical. Because credit cards are offering cash-free transactions and more. Aside from the usual advantage of not having to bring cash on shopping sprees, there are freebies and rebates that are offered to reward credit card users for using their cards on transactions.

Another use of credit cards nowadays is the establishment of credit history. Yes, in modern financial world, people who do not own credit cards are technically not existent. Loss of credit history or records is due to non-ownership of any credit card.

Secured credit cards

Secured credit cards are one type of credit cards that are characterized by the need to open a savings account that would serve as a back up or security for the credit card account.

Thus, if the credit card holder fails to pay his credit card bills, the amount collectible will be automatically deducted to the fund within the bank savings account.

The credit card issuer will first secure an authorization that would allow the company to get hold of the credit card owner's bank savings account if problems regarding payments of dues arise.

In that sense, the term 'secured' is used because security of payment is ensured when the credit card account is backed by a savings account in a lender.

Secured credit card accounts are usually offered by major, and even some minor, banks. It is because these institutions have the authority and capacity to enable customers to open banking savings accounts simultaneously with the credit card account.

However, there are non-bank credit card issuers, which can make use of clients' savings accounts in non-affiliated banks as security for the credit card holders' secured credit card accounts.

Required deposits

Often, secured credit card holders are required to deposit huge amounts of money into their account so they could be authorized to get higher credit limits on their credit card accounts.

Because secured credit card accounts are very particular on security and assurance, the credit limit is only a percentage equivalent or a significant fraction compared to the savings accounts' overall deposit.

In ordinary terms, the secured credit card holder is required to deposit 100% to 200% of the overall amount of the desired credit limit for the credit card account.

For example, if a credit card holder wants a $500 credit limit, then he must make sure the deposit amount on his existing bank savings account would be equivalent to $1,000.

However, on some cases, credit card issuers are giving more flexible terms that would raise credit card limits even without raising the required savings account total deposit.

Payments

Although the secured credit card accounts are secured with bank savings account deposits, the cardholders are still expected to make payments on time and in required amounts.

The credit card account will run as a normal credit card. The issuer would only be required to get hold of the savings deposit, if the customer intentionally does not pay his dues within about three to six months.

If that happens, the credit card account will be frozen and the amount dues will be deducted from the savings account.

Furnishing the credit history

Secured credit cards are the best strategy people with bad credits resort to if they want to improve or clear their credit records.

The person with bad credit will only have to pay his dues on time and in good amounts so he will be considered a good and responsible payer by the secured credit card issuer.

After a few months, if the person's records remain clean, the credit history will eventually be refurbished and that person will be able to open regular credit card accounts with more reliable and major credit card issuers.

Secured credit cards are truly amazing. However good it can be, the card holder should still make sure to be as responsible as he can be when using the credit card for different transactions.