One widely-advocated-for strategy to help recover from bad credit is to take out a secured credit. But can using a secured card help with your credit recovery goals?
Still, while you may want to mull over this decision, sometimes you don’t really have an option because you may not qualify for other credit lines, yet you need to rebuild.
To get a secured credit card, you must give a refundable security deposit (or what lenders call collateral) in trade for a credit line. Your deposit amount has an impact on your credit cap.
Secured cards also come with exorbitant interest rates (which may not cause a significant impact if you clear all balances per month). Most offer no rewards, and some even include annual fees.
So what are the pros and downsides of a secured credit card?
The 5 Reasons to Consider a Secured Credit Card
Secured credit cards can help you establish or reestablish credit. Below are the five pros of a secured card to anyone with bad credit.
- You enjoy easy approval while you may not qualify for other credit card types. The refundable deposit acts as collateral.
- Secured cards report directly to credit firms. They send all the records to bureaus, and the result appears in your credit report.
- Next, these cards are an excellent way to rebuild credit because they send all records
- The lender only taps into the deposited lump sum if you fail to make monthly payments.
- Some cards also come with rewards, which can be useful, especially when trying to re-establish credit.
The Downsides of Secured Credit
Though this product can help you rebuild credit, it comes with some disadvantages which borrowers must understand before committing to a credit line.
- Sometimes it’s challenging to get the lump sum amount to sort the security deposit, which is a must-have for anyone seeking a secured card.
- Besides the security deposit, borrowers may face other fees depending on their preferred card. Some even include an annual fee, which can increase the loan’s cost a great deal.
- These cards come with an exorbitant interest rate. Secured cards charge a higher fee to offset the risks. Always negotiate the rate with your lender to get a better deal.
In the end, it’s easy to tell that the pros of a secured card far much outweigh the downsides linked to it. Still, you want to discuss all the details upfront to get a fair deal.
Author Bio:- Michael Hollis is a Detroit native who has helped hundreds of retailers secure business loans. He’s experimented with various occupations: computer programming, dog-training, accounting… But his favorite is the one he’s now doing — providing business funding for hard-working business owners across the country.