Are Secured Credit Cards Right For You? Both unsecured and secured (prepaid) credit cards can be used to purchase goods and services. However, a secured card requires you to open and maintain a savings account as security for your line of credit. A regular unsecured card does not. Having a good credit score is necessary these days, particularly as many of the services we use every day requires this just to able to business with them. You will also have an easier time making purchases, from something as small as a favourite song online to something really big like new home for your family. This is where secured of prepaid credit cards can help. However, maintaining a good credit score is easier said than done, and a lot of people have found themselves with a low credit score because of poor financial decisions they have made in the past. This is where they end up in a double bind: in order to improve their credit score they need to be able to take out loans, but they can't do so because of their poor credit rating. In this case a secured card can be used to rebuild your credit score and help you regain your good credit standing. What are Secure Credit Cards. Prepaid credit cards are very similar to a regular credit card in that people can use these secured credit cards to purchase products or avail of a service just like a regular credit card. What makes it different is that the credit line is secured by a cash deposit made by the customer. This deposit has a two-fold purpose: it serves as the security for the company issuing the credit card and ensures the customer cannot get into debt because they can only use the card up to the limit of what they have on deposit Hence, a prepaid credit card can provide a means for people to have a credit card even if they have been denied credit cards and loans in the past, and at the same time, it helps them rebuild their credit history. This is great for those who are only starting out in life with no credit history or for those who want to re-establish their credit rating. While the credit available to people with these credit cards depends on how much they deposit in their accounts initially, it doesn't necessarily mean that their credit limit is equivalent to how much money is in their account, although this may be the case for some cards. There are some banks that extend the credit limit by 5-10% higher than the total deposited in their bank account. Having a secured or prepaid credit card helps teach responsibility in bill paying. Paying the full outstanding balance on the card each month shows lenders that the cardholder can meet their responsibilities. This goes a long way to improving one's credit score. Credit bureaus also look at how much credit is available when they calculate a credit score. Applying For Secure Credit Cards When looking to obtain this type of credit card there are some questions you need to ask so that there are no surprises later. Find out if there are any age restrictions and how much monthly income is needed to be considered for a card. A person may also need to have a prior existing bank account before they can be eligible. However, most people can usually get approved for these credit cards by paying the application and annual fees plus making the required security deposit. Depending on how they manage their finances and if their credit score improves, their prepaid credit card can be upgraded to unsecured credit cards in the future with all the benefits associated with these cards. Peace of Mind With A Prepaid Credit Card Credit cards have become an integral part of everyday life, especially since we are all consumes and regularly have some sort of purchase to make. Not only are they a safe alternative to cash once used correctly, they are also used to verify identity and to judge financial trustworthiness (based on one's credit score). This is why for those without a credit card or those with deplorable credit scores can and should seek to get a secured credit card. For those initially without one, it opens you up to a wider choice of financial options and enables you to do even some simple things like book a hotel online or rent a car, for the others it can be an effective measure to rebuild your credit score as it's 'credit' limit is closely related to how much you deposit meaning that you can spend little more than what you've accounted for greatly decreasing the length of time you take to repay. So with secure credit cards you can rest assured that you'll be able to access goods and services from a wide range of retailers while maintaining and or building a good credit score, which is a great financial decision. Also, another use of prepaid credit cards is the college scenario. Very often parents save, and send their kids off to college, and then give them a credit card (unsecured) to take care of the axillary expenses. This plan is a big mistake, as the new college student might not make the best decisions when weighing wants against needs, leaving the parents with debt they might not be able to repay on time, or at all! If only they would have opted for prepaid credit card, the spending of the student would be much more manageable. This benefits both parties, since one learns to budget and the parents aren't drowned in debt. There are many benefits to having a secure credit card, the best of them, seems to be the peace of mind it offers. The Advantages of Secure Credit Cards Once your credit rating has been damaged, life becomes increasingly difficult. A bad credit score can prevent you from being able to get a mortgage, a car loan - even rent an apartment. Having a credit card, similarly, is important if you want to be able to rent a car or get a hotel room. So what can you do if your credit has been damaged by previous bankruptcy, bad debts, or similar problems? If you're working to re-establish your credit, this type of credit card may be the answer for you. The secured credit card is like other forms of credit; with a secured credit card, you pay up front the full amount of your credit line. The bank then issues you a credit card, which has in effect already been paid for. It doesn't give you additional credit - i.e., you don't end up with more money than you had - but it does allow you to prove your ability to keep and handle a credit card. As you make monthly payments on the card in full, you'll gradually re-establish your credit and you'll see your credit score go up. If you're someone who's never had credit before - maybe you're a student, or a divorcee whose spouse had all the credit in their name, or just someone who's never had need for credit until now - you may find it frustrating trying to get something like a first-time car or home loan. No credit can be as difficult to manage as bad credit, and so for people who haven't got any established credit rating, a secured credit card is also a good idea. Banks will give you one; since you won't pose any risk to them, and you can slowly establish your good name by using the card for a year or two. In short, if you think credit is going to be a problem for you in the future, and you can find $500 or $1000 to put into a prepaid credit card, it may be a good idea.
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