Why Secured Credit Card Rates Are High

What is a Secured Credit Card?

A secured credit card is card that has a one-time, refundable deposit before you are approved for the card. The deposit is held by the cardholder company in case you fail to make  payments. Your line of credit will be a percentage ranging from 65% to 100% of your deposit, depending on your  credit history. Credit cards with no deposit required are known as unsecured cards.

These cards are designed for individuals looking to build or rebuild their credit and for this reason, they have higher than normal interest rates. If you are planning on opening a secured credit card, make sure the issuer reports cardholder activity to at least one of the three major credit bureaus.

Advantages and Disadvantages of Secured Credit Cards

One advantage of a secured credit card is that it provides the opportunity for people to build a credit history. Because these cards require a security deposit, it allows for more people to qualify for their cards. This can allow people with bad credit history a chance to rebuild their credit.

However, a disadvantage of this are low credit limits and in addition they are limited to how much once can deposit. Secured credit card interest rates can be lower than traditional rates, so be sure to read the credit card fine print to know what your are getting  yourself into.

Using a Secured Credit Card

A secured credit card is best  for people who fall under these conditions:

• You have little to no credit history (Ex: Student)
• Someone with a low credit score
• You have trouble getting accepted for an unsecured credit card

Before signing up for a secured credit card, be sure to keep the following in mind:

1. Any credit card, interests, or annual fees that could apply with the card
2. Whether or not the card reports to the credit bureaus
3. What your credit line will be and how long you have to pay off your statement
4. Length of  time  until getting an unsecured credit card

Understanding every aspect of a secured credit cards can help you decide if they are a good fit for you.

Conclusion

In conclusion, secured credit cards are a great cards to open if you are looking to build or rebuild your credit card history. It is important to read all the fine print of your card terms to make sure you understand  what you are  signing up for. A big tradeoff of a secured credit cards will be higher interest rates, however this might be your  best option until you are  able to open a unsecured credit card.

Let us know in the comment section below if it did! If you don’t have a savings account, see our best savings account section. Looking to add a little extra income each year? If so, see our list of the best bank deals!