Finance Globe

U.S. financial and economic topics from several finance writers.
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What are the Drawbacks of a Secured Credit Card?


Do you have poor credit? Are you struggling to build a credit history? Do you have concerns about ever qualifying for a credit card?

Despite your stress, there are things you can do to put yourself on the right path. For example, a secured credit card comes with a variety of benefits:

•    Easier to obtain than an unsecured credit card
•    Low fee structure
•    Refundable deposit (if you meet the terms and conditions)

While these benefits are sure to work in your favor, don’t apply for a secured credit card until you first understand these drawbacks:

•    Upfront deposit: With a secured credit card, you’re required to provide an upfront deposit that acts both as collateral and your credit limit. So, if you deposit $500, your limit is the same. If you default for any reason the issuer has the legal right to keep the money.
•    Low credit limit: While secured credit cards typically have a credit limit between $250 and $500, responsible use can result in a future increase. The key to obtaining an increase is paying your bill in full and on time, and doing your best to keep your credit utilization at 30 percent or less.

These drawbacks shouldn’t be enough to scare you away from learning more about secured credit cards. They should validate the fact that the benefits outweigh any potential disadvantages.

As long as you can afford the cash deposit, a secured credit card is one of the best ways to build your credit history and improve your score. With responsible use, you can eventually move on from your secured card by applying for a more traditional unsecured credit card.

Do you have any experience using an unsecured credit card? Were you happy with the benefits? Did the drawbacks get in your way?

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Monday, 22 April 2024

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