Secured Credit Cards

by Sylvie Surette on Wednesday 25 May 2011, 11:07 AM | Category: Banking and Finance| View: 1649 views
 
 
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Lately, we have been seeing credit card companies that are offering what they call secured credit card. They state that it is a really good way to improve your credit when you either have no credit at all or if you have had some bad luck and need to rebuild your credit. But what exactly is a secured credit card and who can get one.

As you may already know, a secured loan is a loan which is secured by something of value which means that if the person borrowing the money does not pay back, the lender has security that he will be able to get the money back. For example, when it comes to a mortgage, the lender is loaning a lot of money to the person who is buying the house, however they have security that if this person does not pay back the money the lender will take over the house and be able to get the money back by selling it. This gives the company a security when lending very large amounts of money.

When it comes to regular car loans, personal loans or credit cards these are mostly unsecured. Meaning that the institution lending the money is taking a risk by lending it as they have nothing to fall back on if the person does not pay the money they owe back.

This is where the credit bureau comes in. They keep track of all credit that each person has and have developed a system that gives each person what they call a credit score. A person's credit score is based on how many loans they have, how many missed payments they have and whether or not they pay their bills on time. If someone's credit score is low, banks will be more reluctant to lend money and in some cases will not lend someone any money at all. When someone reaches this point, it is time to start rebuilding their credit. These people will then be able to use a secured credit card in order to do this.

On the other hand, there are people who have never had credit and essentially do not exist at the credit bureau. These people need to find a way to get credit in order to prove that they will pay loans back. These people will also benefit from a secured credit card.

So what exactly is a secured credit card? It is given by certain banks or financial institutions, who also offer other types of Visa or MasterCard. The difference between a secured card and a regular card is that in order to receive a credit card you need to put money down. Sometimes, you will need to put dollar for dollar the credit you wish or depending on your credit score and current financial situation you could get double the available credit then what you need to put down. For example, you would put $250 down, but would have an available credit of $500.

It is also important to remember to use it and make the payments on time every month. The best way to improve your credit score would be to pay off the entire balance each month, but as long as you can make the minimum payment your credit score will improve. If you are working on improving your credit, you may want to check with your credit bureau in order to see how many times you can get your credit score per year and monitor it as closely as possible. Some credit card companies even offer a credit monitoring program that you can add for a certain fee. This enables you to get periodic credit reports and other benefits.

All in all, building your credit is very important when it comes to buying a car and getting a mortgage, the two biggest purchases you will ever make. If you have had some bad luck in the past, some companies have decided that you deserve a second chance and are giving it to you by offering these secured cards. If you have recently graduated from college and have never had a credit card and wish to build your credit, this is a great way of doing it. Remember to be very careful and to use your available credit responsibly or it will defeat the purpose

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