Secured Credit Cards - A Solution for People with a Poor Credit History

Secured credit cards offer the same features and benefits as traditional cards with one major difference.  Secured credit cards require that the credit card holder must deposit funds into the account before the credit card can be used.  It is similar to using a debit card that is tied to a checking or savings account.  If there is money in the checking or savings account, the debit card can be used for purchases. 

Similarly, if there is available cash on the secured credit card, purchases can also be made.  Potential credit card holders will need to complete an application for the lending institution.  A non-refundable deposit is also required at the time of submitting the application.  The dollar amount of the deposit sets the credit limit on the card.  Typical credit cards limits range from 80% to 100% of the actual money deposited on the card.
 

Secured credit cards tend to have much high interest rates than unsecured credit cards.  Monthly payments are paid on the outstanding balance.  If a payment is not made on time, the issuing institution may revoke future credit privileges or use the deposited money to pay the balance and may even close the account.  Secured

credit cards can help people to rebuild their credit rating if they currently have a poor credit rating.  Since these types of cards have a fixed limit that cannot exceed the deposited balance, it makes it almost impossible to accumulate a large unpaid balance.  The card offers consumers the flexibility to charge purchases to their card and pay them on a timely basis.  This process will begin to rebuild a poor credit rating.

Another benefit of owning secured credit cards is that these types of credit cards can serve as savings account for the card holder and improve their credit rating at the same time.  Monthly deposits can be made each month similar to depositing money into a savings account.  The limit on the card also increases as more money is deposited on the card.  And, the additional deposits will earn more interest for the secure credit card holder.

There are limitations to secured credit cards.  Most plans have a $5,000 maximum credit limit, even if the card holder deposits more than that amount onto their card.  And, secured credit cards do not offer grace periods for late payments.  Late fees are added to the credit card if the payment is not received by the due date.