A credit card is the most convenient way to build credit, but you may be unable to obtain one if you do not have a good credit history or for other reasons such as a low salary, employment with a non-listed company, and so on. In this case, secured credit cards come in handy. Secured credit cards can help people with poor or no credit overcome this problem. Here’s everything you need to know about secured credit cards, including the differences between them and regular unsecured credit cards.
What exactly is a secured credit card?
A secured credit card is one that requires a cash deposit at the time the account is opened. Normally, your credit limit is equal to your deposit, so if you deposit AED 200, your credit limit will also be AED 200. The deposit reduces the credit card company’s risk. If you fail to pay your bill, the issuer may deduct funds from your account. This is why people with poor or no credit can obtain these cards.
With a few secured cards, you may be able to upgrade your account to an unsecured card. Others do not provide an upgrade option, so you must apply elsewhere and then close the secured card.
What distinguishes secured cards from regular credit cards?
Your credit score determines whether or not you need a secured card. Credit card companies typically require at least ordinary credit for unsecured cards that do not require a deposit and thus pose a higher risk to the issuer, and good or exceptional credit for the best cards. Because it is based on a deposit, a secured credit card can be obtained even if you have bad credit. Even if you have bad credit, some unsecured credit cards advertise themselves as being simple to obtain. These cards, however, frequently come with exorbitant fees. As a result, we recommend that you apply for a secured credit card rather than an unsecured credit card.
How do secured credit cards function?
Once the initial deposit is paid, secured cards function similarly to unsecured cards. How are you going to do it?
They are accepted anywhere that accepts credit cards, including online.
You can improve your credit score by using the card responsibly and paying off your balance on time.
You will be charged interest if you carry a balance.
If you are unable to obtain an unsecured credit card, a secured credit card may help you build credit. However, just as with any other loan or expense that appears on your credit report, being responsible with a secured card is critical.
How should a secured credit card be used?
Although secured credit cards require a deposit, they are an excellent way to rebuild credit. You should make the most of one by following these guidelines:
Use your credit card for only one or two minor purchases per month. Pay off your entire balance every month. If you pay in full, you will not be charged interest. In general, secured credit cards have higher interest rates than unsecured credit cards. Maintain vigilance over your credit score. When it noticeably improves, talk to your issuer about switching to an unsecured card.Many people discover that by using a secured card carefully, they can raise their credit score enough to qualify for an unsecured card in less than a year. Some lenders will allow you to switch from a secured to an unsecured line of credit, which is better for your credit because it does not necessitate the creation of a new account. If you do need to apply for a new unsecured credit card, you may be able to reap some of the benefits of good credit, such as lower interest rates, rewards, and fees. When that time comes, you’ll be glad you used this time to rebuild your credit with a secured credit card.
