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Secured Credit Cards

What do you mean by “secured credit card”?

A secured credit card is another very popular variety of credit card. Secured credit cards, as their name suggests, are guaranteed. In fact, they are guaranteed for the credit card provider. A secured credit card requires you to open an account with the credit card provider and maintain some cash balance in that account. This cash balance is a guarantee for the secured credit card provider. Your credit limit depends on the amount you hold in the account you open with the secured credit card provider. This is usually between 50% and 100% of your account balance. So, in this sense, secured credit cards are not really credit cards (because they do not provide you with any real credit). For this reason, secured credit cards are sometimes referred to as debit cards.

Why is the concept of a secured credit card so important?

As we know, credit card debt is a raging problem that is caused by the improper use of credit cards. These people end up destroying their credit rating to the point where they can’t get another unsecured credit card (which is what we call a common credit card). Even after they have paid off their debts and cleared them, their credit rating still haunts them. For these people, secured credit cards are a boon. Secured credit cards offer them the opportunity to not only get a credit card in the first place, but also to improve their credit rating by using a secured credit card on a regular basis (paying their debts on time, controlling their spending, using up to 70% of their credit limit, etc.). As they continue with these good habits, their credit rating will gradually improve over time. Thus, secured credit cards provide them with the means to correct their mistakes (credit rating).

It’s not just people with bad credit ratings who go for secured credit cards. Some people apply for a secured credit card because they don’t want to worry about credit card bills, etc. They don’t even like to fill out the application form for an unsecured credit card.

Then there are also people who just don’t like to borrow money (even from credit card providers by using their credit cards). However, such people are very rare.

Some people choose a secured credit card because they have heard so many horror stories about credit card debt – maybe someone in their family or friends has fallen flat on their face because of credit card debt and they don’t want to repeat the mistake. So they decide to apply for a secured credit card.

Whatever the reason, secured credit cards are certainly popular, too.