Secured or prepaid credit cards are exactly what it says on the tin. These are credit cards that require the applicant to put their money down before the company will extend credit to them. If you have bad credit or have filed for bankruptcy recently, this may be the only kind of credit card you can get. Typically, these are not a very good deal for you economically, but they will give you the opportunity to rebuild your credit rating and restore your good standing.
Here’s how they work. When you apply, you will have to give the credit card company money to secure any purchases you make. This is money you can get back eventually if you pay your bills on time every time and ‘graduate’ to an unsecured (normal) credit card. The company doesn’t intend to keep your money, it’s just a security deposit so that they won’t be at risk when they loan you money via your credit card. These credit cards can have a high line of credit even if you have very poor credit when you get the card. The reason for this is simple: you will need to cover your spending limit with your deposit. Thus regardless of your credit rating, the credit card company will give you a substantial line of credit on a secured credit card if you put enough money down to cover their risk as your security deposit.
If you have bad credit, you’re probably already aware that using a credit card is easy, maybe too easy. However, applying for any credit card isn’t necessarily easy. Although credit card companies have used the Internet to make the application process more convenient, you still need to be aware of what information you need to give them and why you need to give it in order to complete a credit card application. Any inaccuracies in the information you give to the credit card company will delay the approval process or could even lead to a denial of your application. The other reason the company needs this information from you is so that they can check your credit score. Even with a secured or prepaid credit card, your credit score is the single most important factor for creditors choosing what the terms of secured or prepaid credit cards will be.
It is worth finding out what your credit rating is before you even apply for credit. If you’re in the market for secured or prepaid credit cards, your credit rating ill probably not be good news. Credit ratings are important because they are the most trusted benchmark in the industry as an indicator of what kind of borrower you are going to be. How much you have borrowed in the past, how much debt you have already, and your payment history are all looked at and analyzed. Chances are you will get a secured credit card if you can put the deposit down, but your credit rating will determine the terms.