There are many types of credit cards available. However, not all of them are accessible if you lack a credit history or if your credit is bad. Don’t lose hope, there are still choices. A secured credit card is the best choice among them.
Secured credit cards can be an excellent resource for improving your credit. But understanding how secured cards operate a little bit before applying might be helpful. Learn more about how to obtain a secured card, and its major advantages now!
What is a Secured Credit Card?
When you open an account for a credit card, you must pay a cash security deposit. The deposit lowers the risk for the credit card company because they can deduct funds from it if you don't pay your bill. These cards are therefore accessible to those with poor or no credit histories.
The deposit is often equal to your credit limit, so if you put down $200, your credit limit will also be $200. If you manage the card responsibly, you can raise your credit score enough to be approved for an unsecured credit card, which doesn't require a security deposit.
How Do Secured Credit Cards Function?
With a secured credit card, the cash deposit you make determines your credit limit or the maximum amount you are permitted to charge. The deposit provided to start the secured credit card account serves as collateral, so once it has been paid, it remains in reserve and is not available to the borrower.
You could lose your deposit, but often secured card issuers would only make use of it if you miss a predetermined number of payments or default. If you cancel the card and your balance is paid in full, you get your deposit returned.
Alternatively, some issuers of secured credit cards will periodically check a borrower's payment history and, if they consistently make payments, convert their secured card into a standard credit card. You will also get your deposit back in this scenario.
If you are still wondering about how beneficial it would be to get a secured credit card, here is the list of top 10 benefits of secured credit cards for you:
What are the Advantages of Secured Credit Cards?
- Get access to credit cards only transactions: You can use a secured card in circumstances where other payment options (like cash) may be restricted. For instance, if you want to reserve a hotel room or a rental car, you will need a credit card to guarantee the transaction
- Rewards: Get secured rewards cards and offer cash back, points, or miles for every purchase
- Zero liability for fraud: No significant credit card company will make you accountable for unauthorized transactions made with your card. Not just secured credit cards, but all credit cards, this is true
- Potential to develop credit: If you use your card carefully, you can generate good credit or repair damaged credit. Both secured and unsecured cards submit credit bureau reports
- Simpler approval: People with poor credit or no credit history can nonetheless apply for secured credit cards. Some secured cards don't even verify the credit histories of applicants. So, anyone with a required document can get a secured credit card and start their credit journey
- Low or no annual costs: The refundable security deposit required for secured cards helps the issuer avoid losing money, so fees are kept to a minimum. Best secured credit cards like Azpire even provide zero interest rates. If you are a beginner it's the best option to go for a zero interest rate
- Roadside assistance: Many secured cards include cardholders with a free 24-hour phone number that can be used to call for assistance with jump starts, towing, gas, tire replacements, and other roadside emergencies. However, just the dispatch is free. The service provider's repair fees are automatically charged to your card
- Cell phone insurance: Offered with a few secured credit cards, this insurance protects your phone against loss or damage up to $600. You are required to use a protected card that provides the benefit to pay your cell phone payment
- Rare Deposit with interest: The majority of secured cards don't give you interest on your deposit. Security deposits from $300 to $5,000, however, can earn up to 0.10% APY with some secured credit cards
- Enhance Credit Limit with Regular Payment: A secured card's final advantage can only be obtained through cautious use. That entails paying the account promptly each month—ideally in full—and staying well within your credit limit. You will soon be able to obtain an unsecured card with no deposit required, a greater credit limit, better features, and more favorable terms if you continue to behave responsibly
After knowing about the numerous potential benefits of secured credit cards, if you are convinced to start your credit journey, it's wiser, to begin with, free-of-cost secured credit cards like Azpire. Azpire Credit card for credit building comes with zero annual interest rate in less than 5 minutes. All you have to do is visit official website, register for a Zolve Account, and upload necessary documents and it’s done. So what are you waiting for?
Frequently Asked Questions (FAQs)
Is a secured credit card useful in building credit?
Secured credit cards are designed for persons with little or no credit history and can help you raise your credit rating. You can raise your credit score and get access to more affordable kinds of borrowing by using a secured credit card consistently and dependably.
Why are secured credit cards good?
Borrowers who want to raise their credit score may benefit greatly from secured credit cards. Secured credit cards are intended for those who would have difficulty obtaining a conventional credit card, such as those with a bad credit history or little credit history. The deposit customers make makes up for the increased risk the card firm is taking by giving them credit.
With a secured credit card, can I get my deposit back?
You will receive your deposit if you end your secured card account in good standing, which means you have made all required payments. You need to get your deposit refunded if you switch your account to an unsecured card from the same issuer.
How does a secured credit card improve my rating?
Your credit score might rise by 200 points in just a year if you use your secured credit card responsibly. If your credit is poor and you have a score in the 500s or lower, applying for three secured credit cards and a credit builder loan can raise your score to the 700s within a year.
What are the benefits of secured credit cards?
The ability to rehabilitate your credit, regardless of how terrible it may be and low fees are two of a secured credit card's main advantages. Some secured cards like Azpire don't charge an annual fee and allow applicants with credit scores between 300 and 640 as well as those with no credit history at all.