Why Use a Secured Credit Card
People carry credit cards for a number of reasons, but the fact is that consumers of all income levels find credit cards useful in one way or another. Of course not all credit cards are the same and comparing your options is key to getting the right card for your lifestyle. Secured credit cards are one option for users who are not eligible for traditional credit cards.
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How Secured Cards Work
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Secured credit cards are credit cards that use a cash deposit as collateral. They are secured because the card issuer can take the money you deposit if you fail to make your credit card payments on time. Most secured credit cards require an initial payment of several hundred dollars, which serves as your initial credit limit. As you pay off your balance, you can borrow again up to that limit. The card issuer can then raise your limit as you prove yourself responsible or add funds to your deposit.
Lack of Options
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For some credit card users, a secured card is the only available option. This can happen if you have a bad credit history with continuous missed payments or bankruptcy in your past. It's also an issue for new credit card users who have never had a chance to borrow money and establish a good credit history. A secured card doesn't rely on your credit score or past behavior for approval since it uses the money you deposit to ensure that the card issuer won't lose money on your account.
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Convenience
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A secured credit card offers a convenient way to make purchases. While you might not have a credit limit high enough to carry a large balance from month to month or finance a large expense, you can still make daily purchases with the card instead of writing checks or carrying cash. A secured credit card is also useful for making online purchases where cash isn't an option. As with a traditional credit card if you lose your secured card you can call the issuer to cancel it and avoid liability for any unauthorized purchases.
Building Credit History
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A secured credit card helps establish a good credit history. This applies mainly to those for whom a secured card is the only option. As you make your monthly payments, the card issuer can increase your credit limit beyond the amount you have deposited. Over time your credit score will rise to reflect your responsible use of the card. Eventually you can apply for a traditional credit card that won't require any deposit and continue improving your credit score. Once approved you can cancel the secured card and receive your deposit back.
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