A credit card is the easiest way to establish good credit, but you may be unable to obtain one without a decent credit history or for other reasons such as a low salary, employment with a non-listed company, and so on. Secured credit cards come to the rescue in this situation. Secured credit cards can assist persons with poor or no credit histories in overcoming this conundrum. Here’s everything you need to know about secured credit cards, including how they vary from ordinary unsecured credit cards.
What is a secured credit card?
A secured credit card is one that is backed by a cash deposit when the account is opened. Your credit limit is normally equal to your deposit, thus if you deposit AED 200, your credit limit will be AED 200. The deposit lowers the credit card issuer’s risk. If you don’t pay your bill, the issuer has the right to deduct funds from your account. This is why people with bad credit or no credit can get these cards.
You may be able to upgrade your account to an unsecured card with a few secured cards. Others don’t offer an upgrade option, so you’ll have to apply somewhere else and then close the secured card. The issuer refunds your deposit when you upgrade or close a secured card.
How are secured cards different from regular credit cards?
Whether or not you require a secured card is determined by your credit score. Credit card providers normally require at least ordinary credit for unsecured cards that do not need a deposit and thus offer a greater risk to the issuer, and good or exceptional credit for the best ones. A secured credit card, on the other hand, can be obtained even if you have bad credit because it is based on a deposit. Even if you have low credit, some unsecured credit cards portray themselves as easy to qualify for. However, these cards frequently come with exorbitant fees. As a result, we advise you to apply for a secured card rather than an unsecured card with a high cost.
How do secured credit cards work?
Secured cards work the same as unsecured cards once the initial deposit is paid. How can you do it?
They’re accepted wherever that accepts credit cards, even online.
By responsibly using the card and paying off your balance on time, you can improve your credit score.
If you carry a balance, you will pay interest.
If you don’t qualify for an unsecured credit card, a secured credit card might help you build credit. However, just as you would with any other loan or expense that appears on your credit record, it is critical to be responsible with a secured card.
How can you use a secured credit card effectively?
Secured credit cards, though requiring a deposit, are an excellent way to rehabilitate credit. You should make the best use of one by remembering the following guidelines:
Make only one or two minor purchases every month using your credit card. Every month, pay off your entire balance. You will not be charged interest if you pay in full. Secured credit cards typically have higher interest rates than unsecured credit cards. Maintain a close eye on your credit score. When it improves noticeably, inquire with your issuer about switching to an unsecured card. Many people find that by carefully utilizing a secured card, they can increase their credit score enough to qualify for an unsecured card in less than a year. Some lenders will allow you go from a secured to an unsecured line of credit, which is better for your credit score because it doesn’t require you to register a new account. However, if you do need to apply for a new unsecured credit card, you may be able to take advantage of some of the advantages of high credit, such as cheaper interest rates, rewards, and fees. When that time arrives, it will have been worthwhile to use this time to rebuild your credit with a secured credit card.
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