Credit cards may seem out of reach for those with poor or no credit, but this isn’t the case. Banks and financial institutions offer special types of credit cards called secured credit cards that are specifically for those in such situations.
Secured credit cards are very similar to regular credit cards. The main difference between the two is that with a secured credit card, you are required to make a security deposit—usually $300 to $500—on the card before you can spend that money that’s been put down as collateral. Monthly payments are then made, just as one would on a regular credit card. Secured credit cards also offer users the convenience that comes with a regular credit card, such as paying bills online, making purchases, and certain emergency situations.
Secured credit cards are different from prepaid credit cards. Some may prefer the former to the latter because secured credit cards will help you improve your credit score. As you are required to pay your bill each month—much like a regular credit card—secured credit cards are a great choice for those who are looking to rebuild their credit.
Similarly though, your credit score can be compromised if you do not pay your monthly credit card bill on time. Another important thing to note is that secured credit card interest rates on overdue balances may be as high as 28 percent, which will harm your credit score further if you can’t pay off the interest.
In this, prepaid credit cards may be less risky for some as there is no way to miss paying a bill—you are only able to spend what you have “loaded” onto the card. They do not, however, better your credit score like secured credit cards can. As well, certain secured credit cards may offer better services than prepaid credit cards, like point systems or cash back programs.
Secured credit cards can be a great tool to rebuild your credit if used carefully. By making only a few purchases each month, you are more likely to pay off the balance each month without being charged interest, quickly leading you to financial health.
Some major banks offer secured credit cards, though as with any credit card, it’s important to get to know which financial intuition or bank can offer you the best card fit for your needs. Be wary of interest rates, as well as application fees, annual fees, finance charges, and late fees that may be applicable to secured credit cards.
Get on a positive track to financial health. Call us at 1-844-500-9898 to have a ClimbLoans consultant help you customize a plan so that you can start rebuilding your credit to match your savings and future financial goals.