A secured credit card is a type of credit card that requires the cardholder to make a security deposit as collateral. This security deposit acts as protection for the credit card issuer in case the cardholder is unable to make their payments.
How Does it Work?
Here is how a secured credit card works:
- The cardholder makes a security deposit with the credit card issuer. This deposit typically determines the credit limit of the card.
- The cardholder can then use the secured credit card just like a regular credit card, making purchases and payments as needed.
- Each month, the cardholder must make at least the minimum payment on their secured credit card balance.
- If the cardholder fails to make their payments, the credit card issuer can use the security deposit to cover the outstanding balance.
- With responsible use, the cardholder can build or rebuild their credit history over time.
Benefits of Secured Credit Cards
Secured credit cards offer several benefits to individuals looking to establish or improve their credit history:
- They are easier to qualify for compared to traditional unsecured credit cards.
- They can help individuals build or rebuild their credit history with responsible use.
- They provide the convenience and flexibility of a credit card for making purchases and payments.
- Some secured credit cards offer rewards programs and other perks to cardholders.
Conclusion
Secured credit cards can be a valuable tool for individuals looking to establish or improve their credit history. By making a security deposit as collateral, cardholders can use secured credit cards to make purchases, build credit, and work towards financial stability.
