About Secured Credit Cards

Posted by Nick Niesen on October 29th, 2010

Every time you apply for a credit card or loan, each single inquiry from that lender will be recorded on your credit report making too many inquiries is a signal to a potential lender that you are a risky customer just shopping for credit and not for real funds.

True or not, a secured credit card may be the right type of credit card for you because it is secured by a deposit account owned by the cardholder. This deposit consists of 100% to 200% of the total amount of credit desired, that is held in a special savings account.

However, cardholders of secured credit cards still may expect to make regular payments as they would with any other regular credit card, with the only difference being the card issuer has the option of recovering the full cost of the purchases paid to the merchants out of the deposit if the cardholders does not pay their credit balance in a timely manner.

Most entities issuers of secured credit cards consider that if the cardholder does not make the required payment, the account must be paid anyway and before the security is released instead of taking the money from the security to pay the balance due. This is a risk for the cardholders because their card is not cancelled and the balance does not set off the deposit.

It is sad how easy it is to find that such advantage at first glance is nothing more than just a financial move to let interest to continue, accumulating on the unpaid balance for considerable periods of time which total charges often exceed the original deposit and leading the cardholders not only to lose their deposit but after that with additional debt that may become a nightmare to pay.

This is not a threat but a condition usually described in the secured credit card agreement of some credit institutions that most of the time is ignored by the cardholders, or something that they do not read, or do not understand clearly, when the account is opened.

Understanding all the terms of the agreement and not fearing to ask when in doubt is important because secured credit cards are the most viable option to allow individuals with poor credit, bad credit history or no credit history.

In fact, secured credit cards are the best option for rebuilding or cleaning up your credit history report, particularly if Visa or MasterCard endorses them, but always bearing in mind fees charged for secured credit cards more often may exceed those standard fees charged for ordinary non-secured credit cards.