Having credit card makes everything easy, especially for shopping, paying bill, and online transaction. In order to obtain this card, you need to apply it on bank or card issuers. Several requirements are necessary, such as the income statement, debt history, etc. Those are related to whats a secured credit card and how you will get it.
Unsecured and Secured Credit Card
When asking for whats a secured credit card, you should begin from unsecured one. Credit card is loan that owner gets from bank. Basically, you borrow money from bank or a credit company then pay it regularly including the interest. However, it is different from other loans because you do not have to present collateral. If taking mortgage, you use home or real estate as collateral. This is completely opposite side for credit card.
You may ask whats a secured credit card. It is similar to unsecured one, but you need to prepare deposit. It is loan backed by minimum deposit as collateral. You do not have to use property, car, or anything tangible to secure this loan.
Each secured loan on credit card has limit to keep the debt in check. Well, credit limit is maximum spending you will get for one card. You might not be able to spend any more if the card exceeds its limitation. For example, the card has limit at $500. It means you cannot buy or pay anything over such amount. People with bad debt history seem to spend card more than its capability. It affects the debt score and you need the good one for applying credit card. Unfortunately, some banks or card issuers won’t take risk for bad score. Therefore, you may have low probability to get approval for the card.
How does Secured Credit Card Work?
Related to whats a secured credit card, bad score has alternative. Bank uses safety deposit to ensure that card owner has willingness and ability to pay. If something goes wrong, your debt will be paid from its deposit. It is safety measurement in financial field to reduce the risk for unpaid debt.
People ask whats a secured credit card because they cannot get through normal way. This card is also useful if you are afraid for not capable to pay. Instead of adding more late fees, it is better to keep safety deposit handling the late payment. It is practical option, but only few people rely on this method.
Another thing related to whats a secured credit card is high interest rate. Based on credit history and score, people might receive high or low rate for debt interest. Usually, secured credit card has highest interest at all for people with debt issue. Moreover, you pay more because of late payment or administration. This condition keeps card owner in check to ensure the payment regularly.
Keep in mind that secured credit card is different from prepaid debit card. Credit card lets you spend money as loan from the bank or credit union. On contrary, you use your own money when spending through prepaid debit. It means you put money on account and spend it normally. This information is necessary to distinguish whats a secured credit card and prepaid one.