Not having a credit card can make your life difficult because some businesses – like airlines and car rental places, for example – only accept credit cards. It could be even worse if you have a bad credit score. Fortunately, there is an option for those people – a secured credit card.
What is a secured credit card?
It is a card where you are asked a security deposit to cover the losses in case you fail to pay your balance. Because of that, it’s easier to qualify if compared to a regular unsecured card.
Make sure it helps to build your credit score
The best thing about most secured credit cards is their ability to build or re-establish credit. Check if the credit card you want reports to the major credit bureaus – Equifax, Experian, and TransUnion, since some networks only compile and report those histories.
Understand the fees
There is a variety of charges, so it’s essential to compare the options. Annual fees, for example, could vary a lot, they’re usually between $29 and $45. Also, check the annual percentage rate to see if it is not too high. Investigate if they offer a grace period – which is a period where they don’t charge interest – which is often 25 days.
How much money will you have to put down?
You don’t have to have a lot of money to get a credit card – many issuers offer low security deposits such as $200 to $500.
What will your credit limit be?
Secured credit cards don’t offer high credit limits – it will depend on how much money you put down. After some time issuers may allow you to convert to an unsecured credit card with more benefits – such as cash back and travel rewards.
What’s the interest rate?
Don’t forget to check the APR – the annual percentage rate, which tends to be high on secured credit cards. This is very important because it interferes with the final cost of carrying a balance. Don’t expect the same interest rate that unsecured cards tend to offer – it will be a bit higher than that. You can avoid it by paying the balance in full each month.
Does a reputable institution offer it?
See if the card is offered by a reputable bank or institution since some issuers try to take advantage of the customer’s situation. Compare the rates and read the agreement carefully before making a decision.