Authored by Lori Godin in Credit Card
Published on 12-26-2008
Secured credit cards require a deposit in the form of cash, which is entrusted into a savings account before a credit limit is assigned to the consumer. A consumer that has not established credit or consumers that a boost in their credit rating are the most common users of the credit cards.
What secured credit card companies don’t tell you about are the higher fees that come along with the higher risk to customers. Annual fees vary from $49.00 to $149.00, depending on the services available with the credit card.
With traditional unsecured credit card companies, interest rates are determined by the credit rating of the individual. The better the credit rating of the individual, the lower the interest rate that is offered by the credit card company. The higher credit rating that an individual has the lower risk this customer is to the credit card company and therefore credit is extended easily. With secured credit cards, the card holder has a low credit rating and therefore is one of the highest risk borrowers that a company faces.
Although secured credit cards are valuable tools that can help to establish and rebuild a credit rating, they come at high costs. Some companies that offer secured credit cards require the money be forfeited if payments are late, or have been missed. Secured credit cards are an expensive finance tool and the customer needs to be aware of this fact and read the fine print of the credit card agreement.
Read the fine print regarding the deposit that you are making to secure the credit limit. What is done with this money? Is this money guaranteed after the time period? How long before the money is returned to the cardholder? In some cases, the money is returned to the card holder when the account is closed and the card holder is able to obtain unsecured credit. In other cases, the account is returned after a trial period in which the customer has proven credit worthiness.
How is the money returned to the customer? In most cases, a check is issued to the cardholder for the funds which were deposited and the interest that was accumulated through the funds. Other credit card companies reimburse the amount by applying it to the debt that has been accumulated on the credit card. Be sure to know how and where the deposit is going to be throughout the life of the account, this could make the difference in having the principal, as well as the interest returned to the card holder when the term is over or the account has been closed.
What are some alternatives to secured credit cards? If you have a family member or spouse that are willing to co-sign for a traditional credit card than this could be a viable option to restoring your credit rating without the higher costs and interest rates of a secured credit card.