What Are Secured Credit Cards?
What Are Secured Credit Cards?
2022-01-11 14:09:11 - Boaz Sanuel
In Canada, a secured credit card is a type of credit card that requires users to set aside funds as collateral. In most cases, the line of credit for a secured card is equal to the security deposit.
Using a secured credit card can help consumers build their credit history and improve their chances of being approved for an unsecured credit card later on. Additionally, because a line of credit is granted based on the security deposit amount, consumers are not likely to overspend. That being said, it's important that consumers fully understand how secured cards work before applying for one - otherwise, they could get themselves into serious financial trouble in 2022.
When an individual applies for a secured credit card, they must deposit cash or securities as collateral for the loan. The issuer will hold this money in case the borrower defaults on their payments and will use it to settle the debt owed by the consumer if needed. As a result, a borrower with bad credit may be required to make a large deposit before they can get approved for the card.
The amount of money that an individual is required to deposit on a secured credit card will vary depending on specific requirements made by each lender. Most issuers require borrowers to make a deposit that is equal to or greater than the minimum credit limit available on the card. In most cases, this means that a borrower will need to make a deposit of at least $200 in order to get approved for a secured credit card with a credit limit of $500.
Most lenders provide secured credit cards through local branches. It's also possible to apply for a card online, but this option is usually only available to individuals with good credit scores.
Secured credit cards allow borrowers to build positive payment history, which is very important when trying to establish or reestablish credit. In addition, low-interest rates on secured cards are better than the high rates charged by alternative lenders.
There are many advantages to using secured credit cards, including the ability to build good credit.
Some advantages of using a secured card are:
Credit cards that are secured with property tend to only allow the cardholder to borrow what they have invested. On the other hand, unsecured credit cards use the borrower's creditworthiness as collateral. This allows for higher credit limits, potentially leading to greater amounts of debt.
It's possible for an individual with bad credit to be approved for unsecured credit cards or even loans with high annual percentage rates (APRs). These types of unsecured products usually have no limit on the amount they can offer to borrowers.
On the other hand, secured cards are usually only offered to individuals with good credit. As a result, cardholders can expect their maximum available credit limit to be in the hundreds of dollars rather than in the thousands or tens of thousands of dollars.
Although a secured credit card is usually only offered to individuals with good credit, it can be a great option in place of an unsecured credit card.
Credit cards that are backed by collateral tend to have lower APRs than other loans, including payday loans and cash advances from traditional banks. This makes them ideal for borrowers who need quick financing options.
In Canada, secured credit cards tend to come with lower annual fees than unsecured credit cards. As a result, borrowers can avoid paying high charges for an extended period of time when they use a secured card.
Secured credit cards can be a great way for borrowers to repair their credit. This is because cardholders who use a secured card responsibly and pay the balance in full each month are more likely to have positive payment histories reported to major credit bureaus, such as TransUnion and Equifax. This can improve their creditworthiness, allowing them to get approved for unsecured cards in the future.
Although there are many advantages to using secured credit cards, there are also some potential drawbacks.
Some disadvantages of using a secured card are:
Unsecured credit cards are offered to individuals with good or average credit. As a result, they tend to have lower interest rates than other products that are available only to borrowers with bad or poor credit.
Secured credit cards can be great for borrowers who need quick access to financing, but they usually come with high annual fees.
Secured credit cards are usually only offered to individuals who have good or average credit scores. This means that borrowers who don't qualify for unsecured cards may not be able to get approved for a secured card. As a result, they may not have access to quick financing options at all.
Unsecured credit cards do not require borrowers to make an additional deposit when applying for the card. This means that individuals who can't afford expensive cards with high-interest rates are able to access credit easily by using unsecured credit cards.
Unsecured credit cards are available to consumers with both good and bad credit. As a result, these products are not an option for borrowers who have poor or bad credit.
It's possible for an individual with the low credit to access a credit limit that is in the thousands or tens of thousands of dollars with an unsecured card. In contrast, secured cards usually offer borrowers a lower maximum available credit limit.
Although secured credit cards are usually only offered to individuals with good or average credit, they can be great options for borrowers who need quick access to financing. They also offer the advantage of helping consumers repair their credit over time. However, unsecured cards are generally more affordable and come with higher limits. As a result, it's likely that unsecured cards are better for most borrowers, regardless of their credit history.