Benefits and drawbacks of secured credit cards

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Benefits and drawbacks of secured credit cards

The content is accurate at the time of publication and is subject to change.

Secured credit cards are the cards that are easily given out to people with no credit history and those with poor credit history. These cards are easy to obtain because banks and other financial institutions issue them only after the applicant has made a deposit upfront. The credit limit on the card is dependent on the amount deposited with the bank by the applicant. Though these cards are definitely better than the regular credit cards, it is better to understand the benefits and drawbacks of the secured credit cards before opting for them.

The benefits of secured cards

The first benefit is that it is easy to get approval for this card. This is a blessing for first time applicants who have not been able to obtain a card without a credit history. The security deposit acts as an incentive, making the lender process your application faster. Most of the banks report the transaction on secured credit cards to the credit bureaus. This gives you a great opportunity to build your credit history without taking any undue risks. For people with a poor credit history, this card can work wonders in helping you fix your credit flaws.

Another benefit with secured credit cards is that you will not be harassed by collection agents to repay your dues. Since your deposit will be used if you don't make your payment on time, you will have to ensure you don't exceed your deposit and max out the card.

Moreover, banks will pay interest on the amount that you have deposited. You can continue to earn interest as long as the bank is not forced to use your deposit as payment.

The drawbacks of secured credit cards

Though there are a number of benefits, there are a few drawbacks that you need to be aware as well. First of all, you will have to pay a high amount of money as security deposit in order to get a decent credit limit. This may not be possible for most people.

There is also a processing fee associated with the card. This will just add to the cost of availing it. The interest rate on these cards is very high as compared to most of the other cards. Hence, you will have to use them wisely to stay out of debts.

Disclaimer: This editorial content is not provided or commissioned by the credit card issuer(s). Opinions expressed here are the author's alone, not those of the credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the credit card issuer(s). Reasonable efforts are made to present accurate information, however all information is presented without warranty. Consult a card's issuing bank for the terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.
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