If you don’t have a good credit history, a secured credit card can be a great place to start.
A card’s limit is nothing more than a pre-approved line of credit that a financial institution extends to a customer. People who have little information or a history of indebtedness cannot access the limit. Instead of not having access to any credit cards, the secured card can help you build a better track record.
What is a secured credit card?
A secured credit card is a credit instrument issued by financial institutions such as banks. Like all credit cards, the secured card is set up with specific conditions related to the interest rate applied to the balance, minimum monthly payments, and a predetermined credit limit.
How does a secured card work?
The process of getting a card of this type is pretty straightforward. As with all types of credit cards, you must apply for credit privileges by completing an application form. In addition to properly completing the form and complying with the basic standards required by the issuer, the applicant undertakes to deposit a minimum amount into a savings account controlled by the issuer. The balance of the savings account determines the credit limit allowed for the card. Usually, the credit limit is between eighty and one hundred percent of the balance of the savings account.
A secured card generally has an interest rate comparable to any unsecured credit card. Payments are made monthly on the outstanding amount of the card. Suppose a secured cardholder does not make the monthly minimum payments on time. In that case, the card issuer reserves the right to terminate the credit privileges, use the balance in the savings account to pay out the balance, and repay the balance on the account.
What are the benefits of secured cards?
Obtaining a secured credit card can be beneficial in several different situations. The most common reason for obtaining such a credit card is poor credit. A secured card can be one of the first steps in regaining good credit for people who have gone through a period of financial instability. With a balance that is limited to the balance in the savings account that is effectively used as collateral, the likelihood that you will have a credit card debt is low. This action helps create a positive credit reference.
A second advantage of the secured card is that the cardholder can build a savings nest egg and create a positive credit reference at the same time. The cardholder also receives more interest on the balance by gradually topping up the savings account balance every month. At the same time, the credit limit increases as the balance in the savings account increases. Within a short period, the cardholder has identified a source of interest income and started repairing his credit.
Secured credit cards limitations
Many secured card plans have some limitations. Most credit card plans don’t allow a credit limit of more than $5,000. However, some secured plans like Plastk allow a higher limit up to $10,000. In addition, most secured plans have no grace period for late payment.
In conclusion
Do you have a bad credit, or can’t get approved for an unsecured credit card because of recent financial problems, the Plastk secured card can be the right fit for you.
You can gradually improve your score by responsibly using the Plastk secured card. Remember that the card issuer provides credit agencies with information about how much credit you use and whether you pay on time. That’s why it’s important to make payments on time – it shows creditors that you can meet your financial commitments.