10 Questions Before Applying for a Secured Credit Card
Secured credit cards are a great way to establish new credit as well as building new credit after a bad run crushed your credit score.Especially after bankruptcy your reestablishment of credit is extremely important to show future lenders you have learned from your mistakes.
1.What exactly is a Secured Credit Card?
Simply put, a secured credit card is a credit card like any other but this card is secured with a cash deposit from you before you can qualify.If you submit a cash deposit of $250 your credit line will therefore be $250.A secured card will have the appearance of any other credit card, but this one allows banks to “loan” you money without taking any risk and in return they help boost your credit history.
2.Where can you get a Secured Credit Card?
Most banks offer secured credit cards.There are quite a few credit card companies that specialize in only secured credit cards as well.Check bankrate.com for a comparison of many of the cards available to compare fees and interest rates. You may qualify for lower fees and interest rates at the bank or credit union in which you hold your bank account.
3.How much money must you deposit?
It depends. Typically there is a minimum of $100 and an initial maximum of $500.After a few months of consistent payments you may be extended the ability to deposit more funds to extend your credit line.
4.What will I be charged?
Again, it depends. This is where comparing cards will pay off.Each bank will inevitably charge annual or monthly fees as well as an interest rate.Do your homework to find the best deal.
5.What are the “catches” I should watch out for?
Absolutely there are things to look out for.As I am sure you are aware, that fine print will always get you.Be sure to read all of the associated fees including “insurance policies” which could include huge monthly fees outside of your initial deposit.There are great companies out there willing to give you a secured credit card, but there are also quite a few wanting to take advantage of your poor credit history.
6.Should I get a Secured Credit Card through a bank?
It is definitely worth considering applying for a secured credit card through your own bank.They may offer you lower fees or a discounted interest rate for your patronage to their bank.Check out the big banks as well online for their fees and interest rates.Again, Bankrate.com is a great resource because it compares across many different cards.
7.Will a Secured Credit Card really help my credit score?
A secured credit card will absolutely help your credit score; that is as long as you use it responsibly! A good secured card reports to all three credit bureaus as any other credit card and will build a favorable credit history indicating to future lenders, landlords or employers that you are responsible with your money. There are of course bad secured cards that will flag your account as secured and will possibly only report to as little as one credit bureau.Before accepting the card be sure to ask these extremely important details.
8.How long does it take to qualify for an unsecured credit card?
There is no simple answer, but typically credit card companies will want to see about a year of spotless credit history.Be sure to absolutely make every payment on time.
9.What is the best way to use a Secured Credit Card?
The best way to use your secured credit card is to use it very sparingly.You will boost your credit score the most by making each and every payment on time as well as keeping your balance low; to about 30% or lower of your maximum available. Try using your card to buy one tank of gas a month and pay it off right away.This way you won’t be using your card for items you don’t really need and you will simultaneously be building your credit score.
10.Will I earn interest on my deposit?
Don’t expect to take a trip to Cabo on the interest here!Typically you will earn a return similar to that of your personal savings account, about 2% annually.But hey, earning interest is not the goal here, you’re trying to build a positive credit score!
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