In the past, an individual could, with ease, acquire a credit card with the help of a parent or loved one as a co-signer. Now, it’s more difficult to obtain a card as someone with little or no credit. In many cases you must first obtain a secured credit card to build your profile. Here is a quick guide on how they work and what they do for a consumer.
Deposit: When signing up for a secured card, one will need to deposit a sum of money as this acts as the credit line. Usually, one will deposit around $500 and receive a credit line in that amount. Then, the bank or lending institution will report this to the credit bureaus.
Pay: After using the card for the first month, the card owner will receive a bill in their mail or email. Then, the customer would pay this just like a regular credit card bill. When keeping at it for about a year, a consumer will have good enough credit to apply for an unsecured card and should have no problem qualifying.
Who is it for: Now, most people do not need a secured card. This is correct when a consumer has a solid credit score and a few established accounts. On the other hand, a person starting out or recovering from a financial disaster will benefit from this credit card.
Benefits: With a secured card, the largest and most significant benefit is that a consumer will build their credit score. Of course, one can also enjoy other benefits that they would enjoy with an unsecured card. Simply put, it is better to use a secured card than a pre paid debit card as it offers the consumer protections.
When using a secured card, one will improve their credit and show banks and lending institutions that they are, in fact, responsible and deserving of an unsecured card.