How Bank Secured Credit Cards Really Work
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- By Stacey Bumpus
- April 19, 2010
In the past couple of years, more consumers have found themselves challenged by the credit industry. Because they have lost their job or foreclosed on their home, their credit may have been damaged. As a result, they are fighting to repair their credit in time to get a new car or even rent a car. High credit card rates can also hurt people with bad credit.
If you are in this position, then you know how tough it is to prove that you are creditworthy when the damage has already been done. However, by getting your hands on a bank secured credit card, you give yourself a second chance.
How the Bank Secured Credit Card Works
A secured credit card issued by a bank is unique in that it allows a person with bad credit to not only obtain a credit card, but actually improve their credit over time. The reason they are called secured cards is because you are giving the issuer an upfront deposit to offer you a credit line.
This way, they feel protected in the event that you fall behind in your payments or default altogether. It also protects you because you don’t find yourself as easily troubled by bad credit.
So how do you get started with a secured bank credit card?
Usually, you go to your bank or credit union to see if they offer them or find secured card issuers. There, you will sign up for an account then make your initial deposit (it normally equals your credit limit). Usually, within a week, you will get your card and then be able to use it in similar ways to an unsecured card.
The Benefits of the Bank Secured Credit Card
What’s great about secured credit cards is that you get a lot of the benefits that come with an unsecured credit card, including:
- A major credit card logo: The credit card will have a major logo, which means you can purchase items anywhere major credit cards are accepted.
- Credit bureau reporting: Because you want to build your credit, the secured bank card is a great option for you. The issuer will report your status to the three credit bureaus and help to increase your credit rating just as they would with an unsecured card.
- Additional benefits: In addition to the standard benefits, you may get extras like low or no monthly or annual fees, identity theft protection, fraud protection and emergency card replacement.
It’s nice to know that there are some great benefits to the secured bank credit card. But is there a down side
The Bad Side of Secured Bank Cards
While there are a lot of benefits that come with secure credit cards, there are some disadvantages as well:
- Additional Obligations: One drawback to this type of card is that you may have to commit yourself to additional obligations. For instance, you may have a 0 percent APR, but in return, you must purchase a $55 monthly insurance policy.
- Short-Term Benefits: Also, you may have a very low APR, but in the fine print you find that six months later the APR will skyrocket.
So now you see that there is but an up and down side to bank secured credit cards, but overall, they are great options for those who want to repair their credit. If this is you, consider getting your own secured bank credit card today.