What do you mean by a ‘secured credit card’?
Secured credit cards are another very popular breed of
credit cards. Secured credit cards, as their name suggests, are
secured. Well, they are secured for the credit card supplier,
really. Secured credit cards require you to open an account
with the credit card supplier and maintain some cash balance in
that account. This cash balance acts as a security for the
supplier of secured credit card. Your credit limit is dependent
on the amount you hold in the account that you have started
with the supplier of secured credit card. This is generally
between 50 to 100% of your account balance. So in that sense,
secured credit cards are not really credit cards (since they
don’t offer you any credit really). For this reason, the
secured credit cards are sometimes also referred as debit
cards.
Why is the concept of secured credit cards so important?
As we know, credit card debt is a raging problem which is
caused by improper usage of credit cards. Such people end up
spoiling their credit rating to an extent where they cannot get
another unsecured credit card (that is what we call the
commonly used credit cards). Even after they have paid off
their dues and cleared their debt, their credit rating still
haunts them. For such people, secured credit cards are a boon.
Secured credit cards present them with an opportunity to not
only get a credit card in the first place but also to improve
their credit rating by using the secured credit card in a
disciplined way (paying their dues in time, controlled
spending, utilizing a maximum of 70% credit limit etc etc). As
they continue with these good habits, their credit rating
gradually improves over a period of time. Hence secured credit
cards provide them with the means of rectifying their mistakes
(credit rating).
It’s not just the people with bad credit rating who go for
secured credit cards. Some people go for secured credit cards
because they don’t want to bother themselves with the bills etc
for credit cards. They don’t like to even fill-up application
forms for unsecured credit cards.
Then there are some who just don’t like to borrow money
(even if it means borrowing from a credit card supplier by
using their credit card). However, such people are very rare to
find.
Some people just go for secured credit cards because they
have heard a lot of horrifying stories on credit card debt –
maybe someone from their family or one of their friends was
devastated by credit card debt and they don’t want to repeat
the mistake. So they decide to go for a secured credit
card.
Whatever be the reason for going for it, the secured credit
cards are surely popular too.
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