Secured Credit Cards Help To Rebuild Your Credit History

Credit Cards And Debit Cards

The two main types of "plastic money" available today are debit cards and credit cards. Debit cards access your bank account directly and you can only spend the money that is available in the connected bank account. Many banks offer free debit card services with the opening of new checking accounts. Credit cards, on the other hand, send notice of payment to a credit granting institution that pays the charges and adds the cost to your account balance. Accounts are paid back with interest and there is a maximum amount of money that you can spend. Credit cards come in all different kinds and at all different rates. pre paid credit cards, cash back cards and other rewards cards are among the kinds available. Three primary providers, Visa, MasterCard, and American Express, offer countless cards through many different banks. The eligibility for these different cards is based on a borrower's credit history. If previous cardholders have had issues with getting your payments on time or you've defaulted on a loan or credit card before, it will hurt your chances of getting certain cards or at the very least increase the interest rate on the cards that you are approved for. If you are fortunate enough to have a good credit history airline miles credit cards, travel rewards credit cards and other rewards credit cards are among the best ones to get.

What About Those With Bad Credit Or No Credit Rating At All?

If you are a first time borrower or you have a bad credit history that prevents you from getting many credit cards, there is an option available for you. Most banks now offer secured credit cards through one or more of the three major providers. A secured card is no different from a regular credit card as far as its use goes. It can be swiped at any credit terminal, paid with at any website, and used for any mail order catalog. The difference with a secured card is at the bank. When you are approved for a secured credit card, you are required to pay a deposit of one hundred to two hundred percent of the credit limit guaranteeing the account. If you fail to make payments for a significantly long time (usually five or six months), the deposit is one way that the credit granting institution can get a part of the money due. You still make standard payments on a secured credit card. Monthly payments with interest rates and grace periods still apply. The deposit is not designed as the first method of payment. These are not debit card; they are actual credit cards for people with bad credit that simply use the deposit for added security.

Drawback Of Secured Cards

It is best to give the bad news first, because then the good news is that much more appreciated. I'd also like to give a little advice on how to overcome the downsides. The main drawback of a card like this is the interest rate. Secured credit cards have one of the widest ranges of any credit card type. Rates can be as low as nine percent or as high as twenty-five percent on the unpaid balance, despite the fact that the company has your deposit as security! As with all credit cards, the particular interest rate for a borrower is based upon their credit history. The best way to deal with these interest rates is to shop around a bit before you decide on a card. Not all secured cards are equal. Some offer overall lower rates than others. Sure, you'll have to pay maybe a higher rate for one card, but not as high as it would be if you applied for another card with the same credit score.

The second major drawback is the deposit. This is an obvious difficulty, because it requires you have a substantial bit of money available as security before you can even get a card. However, this situation can be bettered. If you make your payments on time and don't go over your credit limit, most banks will begin to raise your credit ceiling without asking for additional deposits. This practice will also help to stabilize your credit history and help you to get a better card in the future.

Benefits Of A Secured Card

The good news outweighs the bad news this time, and I have a few tips for you to help you make the most of the benefits. The main benefit of these cards comes in the application process. These cards are extremely easy to get, and approval is almost guaranteed. They were designed for people with poor credit, and almost any borrower can be approved for one at some rate or another.

Another important benefit of these cards is that they have the same industry standard grace periods as most other cards. If you pay back your purchases within twenty to twenty-five days (depending on the card), then you don't accrue interest on those purchases. If you plan to use one of these cards to rebuild your credit worthiness, then you need to take advantage of the grace periods. Paying back all of your purchases before interest collect will keep the account balance at zero (or at least low). This will look good on your credit report, and a history of such speedy payment will increase your chances of getting a better score in the future.

The final benefit, one that most people do not think about, is the deposit. If you keep up with the payments and use the card to better your credit rating, then when you close the account you have the deposit returned and have that much extra cash available.

Who Needs One Of These Cards

If you have been turned down for multiple cards in the past, then these cards are for you. If you have made a few mistakes in the past and have a less than spotless credit history, then these cards are for you. They are a wonderful way to rebuild credit while keeping the benefits of having the card available. The key things to do are to make sure you select the right card to begin with, keep up with your payments, and pay off whatever you can before the grace period ends. Please visit our section for additional information.

About The Author:

Don Willoughby is a successful author and regular contributor to http://www.e-credit-card-service.net. His websites provide research and applications for different types of low interest rate credit cards .