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Secured credit cardsFor this type of credit card the card holder secures the card through a deposit account. Normally, the card holder must put between 100 and 200% of the amount of credit that they wish to receive. For example, if the card holder deposits 500 pounds into the account they will receive 500-1000 pounds credit depending on the agreed percentage. To attract customers credit card issuers create incentives for the customer such as a greatly reduced deposit amount, for example as low as 10% of the amount of credit that they wish to obtain. In this case the deposit is held in a savings account instead. Therefore the card issuer can afford to offer this deal as the realization is that missed, late or non payments are much reduced when the credit card holder has much to lose from the afore mentioned savings account.Why is there a deposit? Like regular credit cards, secured credit card issuers expect regular payments to be made. The difference however, is that if the credit card holder misses payments and amasses a large balance the card issuer will always have the option to recover all costs of purchases from the deposit. There is also an advantage for the card holder with none or bad credit history as most secure credit card companies regularly report to credit agencies and bureaus and they can therefore start to rectify any past bad credit. Despite the credit card companies having the control of the deposit in case of non payments by the card holder, it can not be used if the consumer misses relatively few payments. It is normally only used when the account is closed perhaps to balance the account and then only with the customers permission. Or it can be used in the case of serious misconduct by the card holder through their account, for example, amassing serious amounts of charges and fees on the account to the point where the balance is significantly higher than the agreed limit. As with regular credit cards, an agreement will be signed agreeing to all terms and conditions when the credit card is initially taken out. Why get a secured credit card? Secured credit cards are great for people with no credit history or a bad credit rating. In these cases people cannot often get a credit card, however, this offers you the chance to obtain credit. Mostly they are used for people who are trying to improve their credit history. However, fees and charges issued on secure credit card accounts can be higher than those on a normal credit card account. But in some cases they can actually be cheaper in the long run. For example people with a long history of bad credit practice, or by charging off on other credit cards. |
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