If you have neglected your personal finances and your credit management has not been the best, it may be time to change your bad financial habits.
A simple way to start or rebuild your score or leave behind several setbacks, is through a secured credit card, since they can be signed up by people with no credit or bad credit score. Here we will explain their most relevant aspects.
What is a secured credit card?
A secured credit card is a financial instrument that requires a guarantee or collateral to obtain it.
Just like a secured loan in which you allow the seizure of the asset if you stop paying, these plastics require an amount of money as a deposit that serves as collateral in the event that you do not comply with the established conditions.
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These financial instruments were created to solve 2 specific situations for consumers: starting a credit history from scratch or restoring a bad credit score.
This means that these cards can be requested and approved by people with no credit history or a bad credit score.
For these reasons, the limits associated with them are low, the interest rates are high and they may include some additional fees compared to unsecured credit cards.
Secured credit cards are very useful tools for making amends for a number of bad financial decisions. In fact, there are options that allow you to "upgrade" your account by giving you an unsecured plastic.
This condition depends on the bank and you will have to compare products to find out who has this benefit.
How does a credit card for bad credit work?
Secured cards are designed for those who have a bad to fair credit score (300-669), so you must have the money for the initial deposit.
Depending on the institution, this amount will serve as your maximum spending limit. There are also cases in which you provide collateral of $49 or $99 and receive up to $200 in credit.
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Once this requirement is met, these plastics work in the same way as the traditional ones. Among the frequent transactions, the following stand out:
- Purchase of products or services in online and offline merchants that accept credit cards.
- Charging interest when you do not pay the full balance and carry over the remaining amount to the following month.
- Charge of fees related to obtaining and using the card, such as: application, processing, annuity, and more.
If you don't qualify for an unsecured credit card, you can improve your credit or start with a secured card.
These are banking products sponsored by companies such as Amex, Discover, MasterCard or Visa, and are easy to process. They are available with or without annuity, so we recommend you compare to find the most convenient alternative.
Advantages of getting a credit card with no credit
The use of a secured credit card revolves around incurring in fewer risky attitudes, controlling expenses and making financial decisions that are more in line with your economic situation.
In addition to making it easier for you to get approved for a line of credit, they have other benefits:
- They serve to report your payment behavior to the major bureaus. Unlike a prepaid or debit card, these products report your credit history.
- They can give you the possibility of generating dividends. Some banks put the deposit into a savings account, which allows you to earn interest and a few extra dollars the longer the contract lasts.
- They are very effective in rebuilding the credit score of people with bad credit. If you pay on time, you improve your balance management, increase your score and eventually qualify for an unsecured credit card.
- With these products, the deposit is a guarantee that the bank takes when you stop paying. Unless your debt is greater than the collateral, you won't have to deal with the collections department. The bank keeps the money and you forget about those pesky collectors.
- For people with no credit, it allows them to start their credit history easily so they can access other financial products.
How to use a secured credit card?
If you are looking to rebuild your damaged credit, we advise you to apply the following:
- Pay the balance in full. Before your payment date, make sure you do this to avoid charging interest because the rates are higher.
- Use it sporadically. Be patient and only make 1 or 2 small purchases each month.
- Check your score. Keep an eye on your score to know your progress and apply for an upgrade when you are ready.
As much as we may want to avoid it or pretend it doesn't exist, we always come back to the credit score dilemma. The point is that no matter how good a payer you consider yourself to be or how well you say you meet your commitments, it's not enough evidence for banks.
If you are looking to build a good reputation or put your financial mistakes behind you, a secured credit card may be the solution.
What are the credit limits of secured cards?
Secured cards are financial instruments that serve as traditional credit cards and almost all banks offer them to the public. The difference with respect to unsecured cards is that you must make a deposit that serves as collateral for the lender.
Generally, the limits on these cards range from $200 to $5,000 USD.
In practice, if you give $400 collateral, then that amount is usually the limit you will have on the credit card. It should be understood that the collateral only serves as protection in case you do not make the payment corresponding to the balance.
This product works just like a traditional plastic, so you will have a cut-off/payment date, interest and more.
Compare secured credit cards with Busconomico
We have seen that secured cards can be very effective for starting a credit history without many complications. In addition, their simple dynamic allows you to recover those points you have lost due to poor management of your personal finances.
By searching the internet, you will find a wide variety of secured cards to build your file and improve your score.
If you want to get accurate and updated information on these banking products, Busconomico's reviews are the ideal tool to evaluate which are the most valued options and find the best secured credit card.
Español: Tarjetas de crédito aseguradas
Addresses of listed banks:
Bank of America Corporate Center, 100 North Tryon Street, Charlotte, NC 28255
JP Morgan Chase Bank, N.A. - 270 Park Avenue, Manhattan, New York, NY 10017
Wells Fargo & Co. - 420 Montgomery Street, San Francisco, CA 94104
Citibank, N.A. - 388-390 Greenwich St. New York, NY 10013 United States
Truist Bank - 214 North Tryon Street, Charlotte, 28202 North Carolina
PNC Financial Services Group, Inc - Tower at PNC Plaza, Pittsburgh, Pennsylvania , U.S.
TD Bank, N.A. - 1701 Route 70 East Cherry Hill, New Jersey 08034
US Bancorp Center, 800 Nicollet Mall - Minneapolis, MN 55402
Capital One Financial Corporation - Capital One Tower, McLean, Virginia
CIT Bank, N.A. - 11 West 42nd Street, New York, New York
Ally Financial Inc. - Ally Detroit Center, 500 Woodward Ave, Detroit, MI 48226
Amerant Bank, N.A. - 220 Alhambra Circle, Coral Gables, Florida 33134
HSBC Bank USA, N.A. - 452 Fifth Avenue, New York City, New York
Comerica Bank S.A. - 1717 Main Street - Dallas, Texas
Discover Bank - 502 E. Market Street - Greenwood, Delaware 19950
MUFG Union Bank, N.A. - 400 California Street, San Francisco, CA 94104
Fifth Third Bank, N.A. - Cincinnati, Ohio, USA
KeyBank, N.A. - 127 Public Square, Cleveland, Ohio 44114
Regions Bank - 1900 Fifth Avenue North, Birmingham, Alabama 35203
Bank of the West - 180 Montgomery Street, San Francisco, California 94104
First National Bank Texas - 507 North Gray Street, Killeen, Texas 76541
First Citizens Bank - 239 Fayetteville Street, Raleigh, North Carolina 27601
East West Bank - 135 N. Los Robles Avenue, 7th Floor, Pasadena, California 91101
South State Bank - 520 Gervais Street, Columbia, South Carolina 29201
BankUnited - 14817 Oak Lane, Hialeah, FL 33016
Ameris Bank - 3490 Piedmont Rd, Atlanta, Georgia 30305
Associated Bank, N.A. - 200 North Adams Street, Green Bay, Wisconsin 54301