A secured credit card is a type of credit card where cash deposit is needed to open an account and the purchases made with the card are insured. The amount of money deposited is equal to the credit limit in the card. A secured credit card can be a good option for people who do not have good credit score, first timers in financial institutions and finally those who want to rebuild their credit score that had been spoilt previously due to non-payment.
A secured Credit card works in the following procedure:
1. The cardholder makes a one-time refundable security deposit that acts as collateral for the credit card issuer.
2. The card can be used like a regular credit card to make everyday purchases.
3. The cardholder’s account activity is reported to one or more credit bureaus.
4. If the cardholder doesn’t make payments on time or defaults on their debt, the lender can use the deposit to reimburse itself.
5. Responsible use of the card can help the cardholder build a positive credit history.
6. After a few months of responsible use, the cardholder may be able to switch to an unsecured credit card.
Secured credit cards are different from prepaid or debit cards because they give the customer a credit line and report payment activity to credit bureaus.
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