With mortgage rates at their record low levels and auto loan rates as low as 0%, now is perhaps the best time to be on the buyer’s side of the credit equation. However, the challenge that many people face while pursuing these historically low interest rates is their poor credit quality. Despite getting credit card balance transfers and auto loan requests at record low rates, there are many borrowers who fail to take out such loans due to poor credit score and the fear of high interest rates. Some experts recommend people to use secured credit cards in order to improve their credit score. But is it so? Is it true that one can boost his credit score with the help of secured cards? Let’s have a look at some of the vital questions that people ask before getting such a card.
Questions before getting a secured credit card
Yes, it is true that credit cards are now a fact of life. You need a card to make a hotel or plane reservation or to rent a car. Responsible usage of credit cards has become a rare phenomenon. People who have never had credit or are walking on the path of repairing their credit score might not qualify for regular credit cards. For them, a secured card might be the best possible solution. Check out some vital questions on secured credit cards.
- What actually is a secured credit card?
When you take out a secured credit card, you require a cash collateral deposit so that it becomes the credit line for that account. For instance, if you deposit $500 in the account, you can charge up to that amount. You can anytime add to the deposit in order to increase your credit limit. Sometimes, the bank may also reward you for making good and timely payments and add to your credit line without requesting you to make any other additional deposits.
- Where to get secured credit cards? Are they available like the regular ones?
Are you a member of some credit union? If answered yes, you can ask about a secured credit card as they usually offer such cards. There are many credit unions that offer secured cards to all their members and might even offer lower interest rates and waive off the annual fees. You can even check Bankrate’s list of secured credit card issuers to get more information.
- Are there any risks to watch out for before taking out such cards?
Yes, according to the experts, secured credit cards have the good, the bad and the ugly. Some come with great offers and some don’t. They carry low fees and interest rates and they treat customers as customers and not as cattle. The bad credit card companies take undue advantage and usually extort their clients because of their poor situation. Apart from the good and the bad, there’s the ugly which are completely intolerable. They are the ones that will give you the card but you have to purchase their insurance policy!
- How can I use the secured credit card best to build my credit rating?
Buy a few things with your secured credit card and pay off the balance every month. If you’re someone who carries the balance from one month to the other, secured credit cards are not for you. The motive of taking out secured credit cards is to make sure that you don’t spend more money than what you can afford and hence it’s not at all a good idea to keep balances without paying them. Secured cards have high interest rates than the regular ones and you can’t seek help of debt consolidation companies if you wish to pay off the debt.
Use secured credit cards as stepping stones to success. Use them responsibly to improve your credit score.