Secured Credit Cards: The Future For The Younger Generation?
Secured credit cards have been getting a lot of attention recently as people struggle with their finances in the current economic climate. Many people regard them as a good option for young people to start learning good financial practices, and for others to start re-building their credit ratings and changing their spending behavior.
This type of card differs from an unsecured card in that the customer has to put up an initial deposit of their own money before they are able to start using it. They are not provided with a line of credit that then becomes a debt when they start using the card.
The limit varies from provider to provider, but a common starting point is around $500. In this example the customer is essentially putting up $500 of their own funds as a security deposit, fulfilling the requirements of a new law that states that a new cardholder needs to provide ample proof that they can repay a debt.
As a result, people under 21 years old are able to obtain a secured card without the need for a co-signer. The deposit is held by the company, and returned when the account is closed, providing the account has been properly maintained. If the customer ends up defaulting on the card, they lose their security bond.
The actual uses are much the same as an unsecured card, as they carry the Visa or MasterCard sign, allowing them to be used to pay for products and services in stores, online and over the telephone. Customers are also able to withdraw cash from an ATM, subject to them having the available funds.
As the majority of secured cards offer monthly reporting to the three major bureaus in the USA, cardholders will also be able to build their history if they manage their account appropriately. This makes secured cards an excellent option for young people and those who would benefit from a change in their spending behavior.
For the above reasons, secured cards are strongly recommended for people who want to change their spending habits and/or improve their score. An increase in score can mean entitlement to better value financial products later in life.
The downside with cards of this type is that they can sometimes come with monthly and/or annual maintenance fees attached. The amount of these fees can vary wildly, from a few dollars a year to around $200 a year. The interest rate (APR) is also higher than many unsecured cards – so it really does pay to do your homework and shop around for the best deal.
Individuals who are over the age of 21 years old, who have an unblemished report and are happy with their spending behavior, may prefer an unsecured card. These do not have as many maintenance charges, usually have a lower rate of APR and do not require an upfront deposit before they can be used.
For more about What Is a Secured MasterCard and how they work or for more about Poor Credit Cards visit us.