Secured Credit Cards

If you do not have sufficient credit history, or if you happen to have a less than sterling credit report, you would likely not get approved for a regular credit card. This would be true whether you apply for a personal credit card or for a business credit card. The credit card issuer fundamentally does not have enough sound reasons to give you a credit card.

What can you do? The way things are now organised in our times, you need a credit card for the most mundane transactions of daily living. If you are travelling, it is always more convenient to pay for your airline tickets and hotel stay with a credit card. This allows you to conserve your cash for the most necessary expenses; it also means you face less risk of losses by carrying only a little cash on your person. Remember, if you lose your credit card, you can get a replacement; if you lose cash, it is gone forever. But if no credit card issuer will give you a credit card, then you will not be able to enjoy the conveniences and security that a credit card can provide.

There is a way, and that is by applying for a secured credit card. Very much like a secured loan, a secured credit card is simply a credit card for which you offer collateral or security to the credit card company. This assures the credit card company that there will be a source of funds which will be used to cover the credit card debt, in case you will not able to pay your credit card account.

The best security (from the point of view of the credit card issuer) you can offer for a secured credit card is cash. The bank may require you to deposit a certain amount of cash with them in return for giving you a credit card line of the same size. For instance, you might deposit 500 pounds with a bank to qualify for a 500-pound credit line.

Since this is a deposit, the bank will pay you some interest on the deposit. But the advantage to them is that if you default on payments to your credit card account, the bank can seize enough money from your deposit to cover the debt and penalties and other fees associated with the failure to pay. Having a secured credit card thus implies that you must take very good care not to be remiss in your credit card payments. You must manage the credit card carefully.

There admittedly is risk to you when you apply for a secured credit card line, because any misstep on your part could result in losing your security. On the other hand, opening a secured credit card line is one good way to establish a good credit record (if you do not yet have the credit history) or to re-establish good credit (if you have a history of poor credit). Once you are able to prove your credit, then you can discontinue the secured credit card after paying it off and apply for a regular credit card.

Back To Financial News September 2007