While researching for credit cards you must have across the terms secured credit cards and unsecured credit cards. While it was hard to grasp all the information about credit cards now it has created one more hurdle on your way to credit card application. To make things easier for you we have tried to cover everything about secured credit cards that is there to know. Keep reading to kick start your research.
What is Secured credit cards?
A secured credit card is a credit card that is issued against a fixed deposit. These types of credit cards are ideal for shopping needs and can be availed by anyone. In order to be eligible for a secured credit card, you need to maintain a fixed deposit with the bank for a certain period of time. This fixed deposit will be your credit limit and keeping this as your collateral will give the security to your credit card issuer in case you don’t make the credit card bill payments.
Benefits of secured credit cards:
Here are some benefits that you get with the secured credit cards:
- You can easily get this credit card without any credit score.
- They are ideal for building credit scores from the scratch.
- You get to understand the working of credit cards.
- You get to enjoy features and benefits on these credit cards.
- Low risk of falling into the debt trap.
- These are accepted by all the merchants.
Disadvantages of secured credit Cards:
Here are the reasons why you must avoid taking a secured credit card:
- The features and benefits of these credit cards are limited.
- You won’t be able to use the fixed deposit amount.
- The interest rates on these credit cards tend to be higher.
How do secured credit card deposits work?
Once you keep the fixed deposit as collateral with the credit card issuer as your secured credit card deposit, you won’t be able to receive it back. This collateral gives the credit card issuer a sense of security that even if you do not pay the bill they won’t have to face the loss. The credit card issuer can use your collateral to deduct the amount you fail to pay. The fixed deposit stays in the reserve until and unless you decide to close your credit card account. Once you close your account you will receive the fixed deposit back.
How to apply for a secured credit card?
You can easily apply for secured credit cards in the similar way you would apply for an unsecured credit card. You would require to attach your age proof, address proof, and income proof with the credit card application. You would also require to submit the form or the details of your secured deposit to the credit card issuer so that your credit card application can be reviewed. These credit cards may come with the annual fees and other charges, and activation fees that you would need to pay in order to enjoy the features and benefits.
To summarise, it is worth taking a secured credit card. Especially those who are just starting off their credit journey without any credit history. These credit cards are ideal for building a credit score and a good standing account. Just keep in mind to clear the bills on time and maintain a low credit utilisation ratio.