Tuesday, December 30, 2008

Secured and Unsecured Credit Cards

Credit card spending is something that the majority of consumers actively participate in. For some it's a matter of convenience. It's easier to use a credit card than worry if you have enough cash. Credit card purchases offer some recourse to the buyer/consumer if they feel they didn't get what they paid for. The charge can be reversed by the credit card company. Some people use credit cards because they want to, while others find themselves doing it out of necessity just to make ends meet.

When it comes to credit cards, there are basically two types available today. They fall into these categories: secured and unsecured credit cards. The exact credit cards you are eligible for will be dependent on your credit history.

An unsecured card is issued to consumers with (at least) a good credit rating. The 'perks' that are attached to it, also depend on one's credit score. Financial institutions determine the credit limit on each card after reviewing things like: debt to income ratio, time on the job, number of open accounts, late payments and missed payments.

This type of credit card typically carries a lower interest rate and fewer miscellaneous fees than a secured credit card. You do not have to pay anything upfront, other than a membership fee, and that can often be waived, in order to be issued an unsecured credit card.

On the other hand, a deposit of some sort is required in order to get approval for a secured credit card. Usually, this deposit will be equal to the credit limit issued. Although, in some cases the credit limit will be higher. It depends on the applicant's credit worthiness. The deposit is not used to make any monthly payments. Don't expect the creditor to do so. It can't be withdrawn for emergencies as long as the credit card account is still open.

Secured credit cards are issued to consumers with a fair to poor credit history. Individuals who have gone through a bankruptcy are typically eligible as well.
These credit cards have very high interest rates and higher fees attached to them. But, most consumers are more than willing to pay these extra fees, in exchange for a second chance at building good credit. Sometimes a secured credit card is the only option.

Many banks refund the initial deposit, after a pre-determined number of on time payments have been made… usually between 12 and 18.
Making timely payments will go a long way, when it comes to re-building credit. It is recommended that a secured credit card be used sparingly, to avoid repeated problems. Use it enough to re-establish your credit but make sure you make the payments on time every month.

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