Are Secured Credit Cards Bad For Your Credit Score?

by Mack Bartlett

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I am sure you are looking for ways to improve your credit score. One of the ways you may have heard of is getting a secured credit card to help slowly turn your misfortune around. You may have heard the opposite. Are secured credit cards bad for your credit score?

Well first let’s take a look at what a secured credit card is. It is secured by a deposit account owned by the cardholder. If you find yourself in this situation you may notice that a regular requirement is a 100% to 200% deposit for the total amount of credit desired to use. So if you deposit $500 then expect a range of credit between $250 and $500 at your expense.

Sometimes you may see the card issuers exude a flash of kindness offering a deposit sometimes less than the 100% of the desired credit availability, possibly even as low as 10%. This is actually done to inspire more responsibility in the mind of the credit customer. Obviously payments are strict because most people are in this situation because of lavish spending and mindless awareness toward payments. If there is a default on the payment then the issuer has the option to recover cost by keeping the deposit.

There is an advantage toward having a secured card, the companies report regularly with major credit bureaus and this allows for faster establishment of good credit. Think of it as being on probation with a parole officer. You can get out for good behavior.

These are really great tools that can give a lot of people a break to prove themselves with baby steps. They are often offered by companies with Visa and MasterCard logos on them, so that will allow for a lot more use in areas that you may not have had access to and we all know how easy it is to swipe a card instead of writing a check. Expect higher fees and service charges compared to non secure credit cards. If you have had a rough history with your credit and high consumer debt, then this will actually be financially more affordable for you.

Now some people will assume that it is bad for your credit because the credit bureaus look down on your involvement with them. To tell you the truth that is ridiculous and otherwise they wouldn’t be recognized by credit bureaus, but some are scams just like any business.

The real problem is if you have a secured credit card issuer that doesn’t report often to the credit card bureaus. You want to avoid issuers that say to call a costly “900” number only to deny you, and if they do accept you then you will pay annual fees, higher than average interest rates, application and processing fees, and countless other ways to nickel and dime you to death.

Make sure they ask for a credit report, this shows their legitimacy by establishing guidelines, and don’t get it from “credit repair” companies or “credit clinics.” They will help you clean up your credit for a fee, but often you can correct genuine mistakes or outdated information by getting a hold of credit bureaus personally. In the end it comes down to time and good behavior, parolees.

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