As we know, there are many types of loan, such as personal loan, mortgage, student loan, and credit card. The latter is common for people because of simple payment tool for daily purchase. You can buy almost everything as long as it is below your credit limit. There are two types of credit card: secured and unsecured one. You can use secured credit cards to rebuild credit score.
Credit Scored and Secured Credit Card
Credit score is the number as index to represent credit worthiness of individual. It shows personal debt and loan history based on income, repayment, and related record. This index is commonly called as FICO score, though there are several institutions that publish their own score.
Unsecured credit card is loan without collateral. It is commonly stated as regular card that cannot be obtained from bank, credit union, or private company. You use this loan for daily purchase, emergency cost, education fee, subscription bill, and other financial needs. To obtain this card, you just fulfill the requirements and card issuer will decide whether you are eligible or not for having this card.
Due to lack of collateral, credit card is high-risk business and bank compensates this situation with high interest rate. Card issuer is in trouble and difficult situation when borrower or card owner cannot pay the debt or minimum bill regularly. To prevent this situation, secured credit card comes in handy.
You can get secured credit cards to rebuild credit history whether from beginning or just establish the existing one. It is tempting choice because you may not be eligible for regular card due to some reasons. Moreover, some people have credit and debt problem that’s lower FICO score.
More about Secured Credit Card
To lower the risk, bank or credit union adds safety deposit as the key requirements. Client needs to pay certain amount of money as collateral that puts into deposit. It is not saving that means the deposit does not get interest. Deposit determines how much credit you will get when using secured credit cards to rebuild credit.
Moreover, credit limit is maximum spending to balance between deposit and credit. Each bank or card issuer offers varied limit and deposit, but mostly between $200 and $5,000. For your information, people rely on this card only for keeping the credit score in check. As long as you fulfill minimum payment, the debt record will show good sign.
Another thing to consider is the card benefit. In general, everything on unsecured card will be on the secured one. There is no difference, except annual feel and closing account. If you decide to stop for using this card, the bank closes card owner account then all money will be transferred back to the legitimate owner. It is very convenient thing because your spending is limited and controlled by deposit. Well, you can rebuild credit via secured credit card.
Keep in mind that secured credit card is not prepaid debit. All spending and expenses come from bank as lender. On contrary, you use your own money when using prepaid debit, but it is limited to what you have paid previously. Moreover, few people take secured credit cards to rebuild credit for longer period that gives the advantage in the future.