Applicants for credit cards, especially ones who have terrifying credit history, need to know what secured credit card is and what makes it different from regular one. It actually is for everyone even though this is highly recommended for people who face trouble in getting regular credit card. Well, below is secured credit card definition and the other essential details.
In fact, there are few differences between unsecured and secured one. Yet, the most obvious difference is the applicants for secured card must make the deposit at first. The deposit made will then be credit limit. This limit usually will be security deposit’s percentage.
For your information, most of the banks which are issuing secured credit card will place your deposit into savings account with interest bearing. Then, the deposit will stay there until you close the account, increase the default on the balance, or upgrade to the unsecured credit card. After learning secured credit card definition, it is time to compare it with the regular one.
Comparing Secured and Unsecured Credit Cards
The main difference is just security deposit. The way both cards work is similar. Any purchase made on secured card will reduce the available credit. As the holder, you must make monthly payments toward the balance of credit card. Another thing to know besides secured credit card definition is its grace period.
This card which has grace period requires you to pay full balance every month in order to avoid the finance charges. Over limit transactions and late payments will lead to penalties which usually mean spending extra fee. Compared to the other types of credit card, secured one usually has more fees. That is one more thing to know after secured credit card definition.
Some fees that must be paid by you are including application fee and annual fee. Many credit card issuers even require their customers to pay interest rates that are so high, increase fees for credit limit, and fees for monthly account. Below are details that are more complicated than secured credit card definition.
Everything Else to Know Before Applying This Card
Although initial deposit is needed to get the card, just like pictured by secured credit card definition, more payments are needed. Some regular payments on balance are required by issuers. The bank or card issuer will report late payment to credit bureau which means one late payment will hurt good credit score.
In addition, secured credit card with security deposit holder who fails to repay for few months will get penalties. The worst penalty is when credit card issuer decides to close the account. Once bank closes the account, the security deposit will automatically lose.
Well, understanding secured credit card definition is not enough. Each applicant must understand the qualifications that may be less strict than the qualifications of unsecured one. However, the responsibility is the same. Now, after you get the clear information about the detail and definition, you can consider the pros and cons of this card before applying.