Secured credit cards are credit cards that are secured against certain security, like a cash deposit, kept with the issuing bank or credit card company. In that regard, they are clearly quite different from your usual credit cards – in a positive way, mind you, at least for the majority of those who hold these secured credit cards!
The objective of this article is to apprise you about this difference so that you consider secure credit cards when they are perhaps the best option for you in your scenario.
Easy to Obtain
One of the biggest advantages by far of secured credit cards is that they are far easier to obtain. Being held against a particular security kept with the issuing entity, that entity does not consider such credit cards to be as risky as others which are not secured in the same way.
With the risk being significantly lower, the overall checks and balances that are performed are also much lesser. As a result, those keen on obtaining these secured credit cards – once they do furnish the requisite security, quite easily obtain the desired credit card.
Being secured and therefore subject to much less scrutiny of creditworthiness by the concerned bank or credit card company, these secured credit cards also happen to be issued really promptly.
In fact, there are many cases where as soon as the customer furnishes the requisite security, a secured credit card is issued to that customer the very same day.
Secured Credit Cards Help Improve Credit Score
For those with a poor credit history, secured credit cards are often the only way of having a credit card in the first place since most banks and credit card companies are likely to refuse to issue a credit card to one with a chequered credit history, in the first place.
That said, for all such folks, secured credit cards are an excellent way to improve one’s credit score. After all, with most loans or regular credit cards being refused, this is one of the very few options that are actually available to those with a poor credit score.
Under such circumstances, if payments are made on time and ideally in full at the end of each billing cycle, such behaviour can certainly go a long way in ensuring significant improvement in the overall credit score.
Building Credit When There is None
Akin to bad credit is the aspect of no credit; when there is simply no history of any borrowing, any loan, any kind of debt being availed. Since banks or credit card companies have really no idea about the credit behaviour of the other person, they could possibly be hesitant to issue any kind of credit.
Once again we find secured credit cards coming to the rescue since they help to build credit where there is none.
Like with the poor credit instance we cited above, as one continues repaying diligently, a clear picture of credit starts to emerge, that too one with good credit.
Earnings on Deposits Made Against Secured Credit Cards
In nearly all instances where deposits are made to obtain a secured credit card, the deposits do earn interest. So in that sense, they function pretty much like regular Fixed Deposits (FDs) you make in the bank or with other entities such as companies.
Therefore, with secured credit cards, on one hand you get yourself a credit card when it would otherwise have been difficult for you to do so, in case of poor or non-existent credit history.
Alongside, the deposit you make for your secured credit card also earns you precious interest. With most such deposits functioning like regular FDs, the interest you will be earning on your secured credit card deposit will actually be quite good.
Clearly, secured credit cards are a great way to obtain credit cards when it may otherwise be difficult to do so.
Alongside this, they also help build financial discipline and acumen, especially when these traits may have been missing previously due to past financial transgressions.
Of course, interest earned on deposits made for obtaining secured credit cards is the icing on the cake!
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