Today, let’s consider the answers to six of the most frequently asked questions about secured credit cards. We believe that by knowing the answers to such queries, we can empower our readers to make the right decisions, not only in terms of picking suitable lines of credit, but also in terms of managing their existing credit card accounts.
Question 1: Why are they called “secured’?
Answer: The modifier secured is used to describe the most striking feature of these card accounts – that is, the existence of collateral, which comes in the form of a security deposit. The collateral in secured cards serves as a guarantee for the repayment of the bills and expenses that will be charged by cardholders on their respective accounts. Should they decide to deliberately default on their monthly bills, card issuers can simply use the deposit provided to settle the unpaid credit balance.
Question 2: What’s the purpose of the security deposit?
Answer: As was mentioned above, the initial cash out guarantees the repayment of future credit card charges, especially in case of default. But that’s not all. The security deposit is also used to determine the spending limit or cap that will be imposed on the card account.
For instance, if you submit $900 to your secured card issuer then, you can look forward to using as much as $900 dollars on your credit card account. Just remember not to go overboard with your credit card transactions, otherwise you will be penalized with overdraft fees and declined transaction charges.
Question 3: How much cash should I submit to my target card issuer?
Answer: The answer will depend entirely on the firm you wish to deal with. After all, issuers of these card accounts tend to impose widely-varying requirements on the lines of credit they offer to their prospective cardholders.
A good rule of thumb, though, is to check out the application and deposit requirements of at most five credit card firms. Then, choose an issuer that can provide you with a card account that carries a competitive rate of interest, a minimal cash-out requirement, and a suitable credit limit.
Question 4: Do secured credit cards carry the same set of features?
Answer: No, they don’t. In fact, if you will shop around and compare the rates of interest, fees and charges, payment terms and options, and credit limits imposed on secured card programs, you will soon realize that such features vary from one card issuer to another.
Question 5: What are the usual requirements for secured cards?
Answer: Aside from the initial deposit, you may also be required to fill out application forms, submit identification papers and some financial documents, and pay a minimal processing or administrative charge.
Question 6: Which habits should I avoid when managing secured lines of credit?
Answer: You should never be delinquent on your credit card bills. After all, such habit will not just cost you a great deal of cash, in the form of late payment penalties and surcharges. It can also cost you your excellent credit standing or inflict further damage to your already poor credit rating.
We also discourage you from violating the terms and conditions of your credit agreement. After all, one hasty decision can damage your reputation and minimize your chances of qualifying for additional credit accounts, later on.
About the Author
Emma Lee is a financial consultant and a freelance writer. She has more than 15 years of experience in helping consumers find and qualify for secured credit cards. She regularly contributes articles to Secured Credit Card Site to provide readers the latest information about secured, prepaid and unsecured credit cards as well as the latest trends in financial management.