A secured credit card is a type of credit card
that is designed for people who have damaged credit and for
those who have not yet built a credit history. Secured
credit cards require a deposit to open the account. The
amount of the deposit required varies from card to card. The
deposit is held for security by the credit card company as
insurance that the cardholder will keep the account in good
standing and abide by the terms.
The credit limit on a secured
card is determined by the amount of the deposit. Sometimes
the credit limit will be for the full amount of the deposit
and other times it will be a percentage of the total deposit.
Besides the required deposit, the same rules apply for a secured
credit card that apply for an unsecured credit card. If the
cardholder does not make the required monthly payments on
time, late fees will be assessed. If the balance is not paid
off in full each month, then interest will be charged on the
outstanding balance. The balance on the card cannot exceed
the preset limit.
If the cardholder is neglectful on paying his or her account,
the deposit will be used to pay off the debt. Even though
the card is secured, it is still possible to damage credit
if the cardholder is irresponsible with the account. But in
most cases consumers seeking a secured credit card are trying
to improve or build their credit. When used responsibly, a
secured card is a great tool for establishing and re-establishing
good credit. If the cardholder proves good faith and makes
all of the monthly payments on time, then there is a good
chance that the credit card company will increase the limit
on the card. In most cases if the cardholder continues to
keep the account in good standing, after a period of time
the original amount of the deposit will be credited back to
the account. Many people have improved their credit with a
secured credit card and can now qualify for an unsecured credit
card.
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