The youth is often worried about building credit. On the one hand, they want to make a necessary purchase, and on the other hand, they lack credit. If you face issues with rebuilding poor credit history, you can resonate with this. However, there's a solution here. It is to opt-in for a secured credit card that might help you to get financial independence. But before that, it is essential to know the way a secured credit card works.
Understanding the features of a secured credit card
Simply put, a secured credit card gets backed by a cash deposit which the cardholder pays. The cash deposit secures the credit card issuer if the cardholder fails in his/her payments. Acquiring a secured credit card is easy. The credit card issuer evaluates the applicant's financial position and decides the exact amount for obtaining the card. People who have a weak credit card can also secure this credit card. The deposits generally start from $200 and get limited to $5,000 beyond which the user can’t use.
The secure credit card has a few differences when they get compared to other credit card types. To know more about different credit card types, you can check out Chase Freedom categories. Getting back to the secure credit cards, the differences are:
- Unsecured and secured cards – Unsecured cards don't need any deposit, credit limit, and approval depending on an individual’s credit history and score. Furthermore, these cards have lesser fees, attractive reward programs, and reduced interest rates.
- Prepaid debit and secured cards – Simply put, a secured debit card gets covered by the cash payment. The moment this cash is over, you need to refill this card, adding more money. The secured credit card does influence your credit, but a prepaid debit card doesn't.
The advantages of secure credit cards
A few essential secure credit card advantages are:
- It acts as a credit builder and re-builder–The primary purpose of this card is assisting the ones who have a poor credit score. It helps them to build a credit history. Similar to the way it helps a person commence his/her credit journey, the secured credit cards also assist earlier credit records to be back on track.
- It reports to the credit bureaus–The activity from the secured credit card gets reported to the credit bureaus. It happens the same with unsecured cards as well. The positive habit gets rewarded using favorable credit scores.
- Many useful advantages – Several secured cards feature the benefits of the unsecured card; it comprises of credit monitoring, cell phone security, travel insurance, and identity theft alerts.
- The scope to start using an unsecured credit card – After using a secured credit card for a while, a few people would want to move on to an unsecured card. A few providers offer this in about eight months.
If you want to build or rebuild the credit base, you should say yes to the secured credit card. The deposit might be challenging for you to attain for a while. However, the card fees and the absence of rewards shouldn't discourage you. It helps you to balance out your financial health and helps you in the long run.