How Does A Secured Card Work
Not all credit cards work in the same manner. When we talk about interest rates, payments, and fees, different credit cards have different functionalities.
Secured Credit Cards are useful in establishing a credit history or to repair a bad credit history when the usage of the card is reported to credit reporting agencies. The credit limits on secured credit cards are determined by a security deposit instead of the cardholder’s credit history.
The following is an overview of how secured credit cards work.
What Determines a Secured Card Credit Limit?
To get a secured credit card, you first have to deposit a certain amount of money, which will determine your limit. You may increase or decrease your limit accordingly. Simply by sending a bigger deposit amount, your limitation unit will increase. When a person is unable to make regular payments, the amount in the security deposit can be used to cover the damages.
When is the Security Deposit Used?
When the cardholder decides not to make regular payments, the issuer can use the funds which are held in the security deposit instead. This usually occurs in two situations, (i) When the account becomes delinquent (150 days or more) (ii) When the issuer wishes to close the account.
Is a Secured Credit Card a Debit Card?
No, as the name suggests, a secured credit card is still a credit card. With a debit card, you pay for the purchases you make using the money present in your bank account. With a credit card, you don’t need to have cash in your account, you can make a purchase and pay back the amount later.
Do I Have to Pay Secured Credit Card fees?
Yes, there are three different kinds of fees:
- Application Fees: Almost every secured credit card application comes with a standard fee charge.
- Annual Fees: Every secured credit has its annual fee charges.
- Expedite Fee: Those in a hurry can also pay this fee in order to get their secured credit card earlier and then relax.
Should I be Looking out for More?
No, this pretty much sums up the whole process.
Let’s take it from the top. You start by making a security deposit to determine your account’s minimum and maximum wage. After that has been done, you are required to pay regular payments (usually monthly) in order to keep the cycle running. If the issuer wishes to close the account, they can get their deposit back, either by using the amount or by closing the account.
Secured credit cards are not great inventions or products; their mission is to improve the credit history of those who have not been on a good and clean track.