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Why Choose a Secured Credit Card?

What do lenders usually do when borrowers come applying for a loan? Lenders review their credit history, look at their level of income and then decide, are these people eligible for a loan or not. The same is true for all similar products. But how can I get a credit card if I’ve never borrowed a dollar or if my loan history is not that good? The truth is that borrowers can still apply for some credit products. If you want to improve your credit history - you should apply for secured credit cards.

Differences Between Secured and Ordinary Credit Solutions

Secured credit card functional is not that different from an ordinary one. If we look at products https://effectify.com/credit-cards/secured-credit-cards/, we will see that they all have credit limits and you should still apply for any of them. However, using secured solutions is not the same as using average travel card as:
  1. You need to pay a security deposit: As your borrowing history stays not well enough, issuers of these financial products are not sure that you will return all payments in time. That is why you pay them a deposit as a guarantee which they will bring in case of your default. The Huffington Post compares that to a security deposit you pay to owners of an apartment you rent so that they will have enough money to repair any damage you might cause;
  2. You earn the interest on your deposit the same time as paying the interest on your loan: Yes, some products can allow you to get the interest on the security deposit so as to defend it from the inflation (but never expect this rate to be higher than your borrowing rate);
  3. Your interest is higher: Clients with low credit scores are considered as riskier borrowers, so the return issuers require is always higher. Anyway, it is still better than no credit card at all.

Benefits of Secured Credit Cards

People with high scores have no interest in applying for secured credit cards as they can apply for more lucrative offerings. Borrowers with problematic borrowing history use these offerings as a way to improve their score. They pay their debt in time, avoiding net debt and after a series of transactions, they quickly improve their score. As soon as they achieve a modest rating, they apply for travel cards, offering rewards and cash backs in contrast to secured ones.

Although one can view a secured card as an easy escape, it is not that so. Owning it you take the responsibility for improvement of your credit. If getting the card, you will still not return your debt in time or even default, there are no chances that you will get acceptance again. Anyway, you will not get any loan without an approval of your application by owners of the card.



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