Secured Credit Cards- Consumer Tips

Whether you have no credit or damaged credit, secured credit cards are a good tool for building a good credit history.

Several months ago Tom, a member of CreditBoards.com, filed for a Chapter 7 Bankruptcy. Now he is in the process of rebuilding his credit history. It’s a task that is not easy, but with patient persistence he is seeing progress already. Daily he checks his credit score and is slowly seeing improvement.

1 – In addition to correcting every mistake, even the smallest ones, on his credit report, he is using a secured credit card.

2 – This secured card is an important tool in the overall process of building or rebuilding credit.

Who should consider a secured credit card?

Someone who has no credit history.

Someone with a damaged credit history.

What is a secured credit card?

Secured cards are credit cards opened with a deposit into a savings account, money market or certificate of deposit. The amount of deposit required varies from card to card, but generally minimum amounts range from $250 – $500. These funds are considered your security and will even earn a little interest since they are being held in a savings account. Your credit limit is determined by the amount you deposit into the savings account. Sometimes the limit will be for the full amount of the deposit; other times it will be a percentage of the total.

It is important to keep in mind that a secured card is a credit card, not a debit card. If full payments are not made each month, then interest is charged on the outstanding balance. And the lending institution uses the security money to pay off the debt only as a last resort. Even though the card is secured, it is still possible to damage credit.

What are the benefits of a secured credit card?

Establishing credit. If you have never had a credit card, a good first step in establishing good credit is applying for a secured credit card. Assistant Professor of Economics at Austin Peay State University in Clarksville, TN, Jerry Plummer says, “A secured card is most useful for the person starting out on their credit history, since it says that the person is willing to take the extra step to establish credit.”

Reestablishing credit. If your credit history is damaged, you may only be able to qualify for a secured credit card. Using this secured card appropriately and within the set parameters will help rebuild your credit and qualify you for an unsecured card. If you have had to file for bankruptcy, however, you may not qualify until it has been discharged.

Preset limit cannot be exceeded. If poor spending habits were part of the cause for bad credit, then a secured credit card will help keep spending in check.

Useful for transactions that require a credit card. Hotels and car rentals require the use of a credit card. If you don’t qualify for an unsecured card but you do for a secured card, then you are still able to make the transaction.

What should I look for or avoid when shopping for a secured credit card?

Fees. This is the area you will really want to research when shopping for a secured credit card. Some cards will come with fees that run into the hundreds of dollars, eating away much of the credit you secured with the savings account. Professor Plummer says a card with no fee is the best, but a small one-time fee can be okay. Annual fees for attractive secured cards typically range from $20-$35. Be sure to watch out for hidden fees such as “registration charges” and “setup fees.”

Interest Rate. Just because you have no or poor credit doesn’t mean you have to settle for the highest interest rate. Interest rates for attractive secured cards should not exceed 19%. Shop around and get the most competitive rate available.

Read the fine print. Linda Tucker, Director of Education for Consumer Credit Counseling Service for Arkansas and Memphis, TN, stresses the importance of reading the fine print. Doing so will let you know your exact obligations to the issuing company: for example, the grace period, what happens if you don’t make a full payment, and what fees are attached if you don’t make the full payment. Understanding these details will help make sure you are not further damaging your credit.

Fraudulent Offers. As with unsecured cards you need to watch out for fraudulent offers.The Federal Trade Commission gives the following advice to protect yourself from credit card fraud:

Offers of easy credit. No one can guarantee to get you credit. Before deciding whether to give you a credit card, legitimate credit providers examine your credit report.
A call to a ‘900’ number for a credit card. You pay for calls with a ‘900’ prefix — and you may never receive a credit card.
Credit cards offered by “credit repair” companies or “credit clinics.” These businesses also may offer to clean up your credit history for a fee. However, you can correct genuine mistakes or outdated information yourself by contacting credit bureaus directly. Remember that only time and good credit habits will restore your credit worthiness.

When will I qualify for an unsecured credit card?

It can take several months to see an improvement in your credit history. Bankrate says it’s a good indicator when you start receiving flyers in the mail for unsecured cards that your credit is improving. However, it’s a good idea to continue taking things slowly. Using a secured card will help you learn healthy habits so that when you do get an unsecured credit card you remain in control of your spending and credit.

Where can I find a secured credit card?

Most companies don’t advertise secured cards. But you can visit the Card Reports section of http://www.CardRatings.com to find out where and how to apply. Click on the link entitled “Cards for Consumers with Poor or No Credit”.

Other tips

Tom recommends sticking with only one or two cards and keeping spending to a minimum. The goal is to pay the card off each month.

Tucker emphasizes the importance of paying the amount due each month; otherwise late fees can be charged, interest rates raised, privileges lost, and credit history negatively affected.

Make sure you are getting a credit card as opposed to a gas card or a department store card.

Make sure a reputable bank or credit union, even a local one, is issuing the card. And, don’t automatically assume a bank is issuing the card.

Not all issuers report to the three major credit agencies (Experian, Equifax, and TransUnion). It’s important to get a card that does report to all three agencies; otherwise you will be wasting your time. Fortunately, secured cards normally report to the credit agencies just like unsecured cards (you should verify this before applying).

If you have filed for bankruptcy, you may need to wait until it has been discharged before qualifying for a secured card.

Get one only if you cannot get credit, since you have no credit record; or if you have poor credit. Plummer says, “Many companies will not even count them as credit, such as automobile F&I (Finance and Insurance) people, although they will not admit it.” So, if you don’t really need a secured card, you will be doing more harm than good.

Finally, whatever situation you are in, no credit or poor credit, the best way to build good credit is to set up a budget and then stick with it.

1 You can pay membership fees to any one of the three credit bureaus – Experian, TransUnion, and Equifax- to be able to check your credit score online daily. Visit our Credit Information section for more details. Tom recommends purchasing Microsoft Money 2004, which comes with a one-year membership to Experian (value of $99.00).

2 To find out more about correcting errors on your credit report, read our article How to Correct Mixed or Split Credit Reports.

Six terms you should know about your mediclaim health insurance policy

Everyone knows the benefit of having a mediclaim health policy in his or her life. However, a majority of the people in India do not go through the entire mediclaim policy booklet. You should understand every word written in the policy booklet for you to make the perfect claim. Even the best medical policy for family would include certain words that require explanations. Some of the insurance terms can appear like jargons. However, they are not. You should read and understand the same. We shall now look at some of the common terms in an insurance policy that could cause confusions in the minds of the people.

Hospitalization:
You should understand one point very clearly in India. The insurance cover is available only if your medical condition entails hospitalization for a minimum period of twenty-four hours in a network hospital. You may have doubts as to what constitutes a network hospital and what does not. In the past, this used to be an issue. Now, the insurance booklet contains the list of all network hospitals in India. The insurance companies update this list every year and provide you the latest one when you renew your mediclaim policy.

Pre-hospitalization and Post-hospitalization expenses:
This is a very positive aspect of mediclaim policies in India. In case you suffer from a disease that entails hospitalization, you can claim the pre-hospitalization expenses for a period of thirty days prior to your hospitalization. This entails that you should keep all your medical diagnostic test reports, medical prescriptions, as well as the bills ready on hand. At the same time, the insurance policy also covers the post-hospitalization expenses for a period of sixty days as well.

Pre-existing diseases:
This term can be quite confusing for the policyholder. You can see the rejection of many claims due to this factor. Hence, it becomes imperative for you to understand as to what is a pre-existing disease. This could include any disease or symptoms of the disease you might have had or shown prior to purchasing the insurance policy. You have to make a declaration to this effect at the time of purchasing the mediclaim policy.

Exclusions:
You should have a clear idea about what your insurance policy does not cover. This could include certain disease such as cataract, hernia, etc for a minimum period of two years. Subsequently, you may get the cover if you renew your policy on time. The insurance policy document would have listed out these exclusions clearly. Going through the same is to your advantage.

Waiting period:
Many people believe that the insurance policy covers the diseases from the moment you take the policy. It is not so. There is a minimum waiting period of thirty days for any disease. The pre-existing disease could have a four-year waiting period whereas disease such as cataract etc can have a waiting period of at least one year.

Day-care treatment:
Today the medical science has made tremendous advancements. Certain procedures such as eye surgery, chemotherapy, etc require less than twenty-four hours for treatment. The present day mediclaim health insurance policy has provisions to honor such claims as well.

Secured Credit Cards – the Basic Facts

Credit card is a part and parcel of modern life. The credit card offers us the ease and simplicity to spend money without carrying cash, is versatile and handy to use and provides us the means to establish and recreate our credit rating. The secured credit card is however, not without its disadvantages, the main one being high interest rates charged on it. How would you rate your capacity to purchase a home or the car you want or the loan you simply need? How significant is it for you to have a good credit rating? In order to establish and spruce up your credit score, the best possible option is to have a secured credit card. A secured credit card is in effect the opportunity to regain a sound financial position. Due to the easy accessibility of credit reports through well-established credit bureaus today, credit issuers rely increasingly on these reports to make their final decision on providing you credit. A credit card is often denied to you when you do not have a credit history. This is often in the case of the young adults who have never taken out a loan or have so far used a credit card through a parent. It can also occur in the case of divorced people who have never had a credit card in their name. Secured credit cards [http://www.creditrunner.com/secured-credit-card-offers] thus provide the best means for anyone to establish a credit history. The secured credit card by virtue of being secured by your own money allows the issuer to feel safe, ensuring their money back in case you default. Since the issuer is also holding your money, they persuade you to make your payments regularly instead of losing your security deposit on the secured credit card. Secured Credit Card – A credit card with a security deposit Very often when you rent an apartment, the landlord will ask you to deposit an amount equivalent to a month’s rent into a special account. This amount acts as security and is not used till you move out. When you move, this money along with interest is returned to you. You will not owe the landlord any money if you leave the apartment without any damages. The same rule applies to the secured credit card. In a secured credit card you have to deposit an amount as security equivalent to 50-150% of your credit limit in a special account with the credit card issuer. The credit card issuing company will provide you with a secured credit card which is used like a regular credit card. The only difference being that only you and your credit card issuer know that the secured credit card has attached to it a security deposit. Provided you use your secured credit card wisely, the security deposit will not be used. This means that the secured credit card will be used to make reasonably priced purchases and the monthly bills will be paid regularly and fully as far as possible. To increase the credit available to you on your secured credit card, you can either increase your security deposit or get as many secured credit cards as possible. The credit card issuer will soon increase your credit limit from 50% of your deposit to anywhere between 75% and 100%. The interest rates on secured credit cards are usually quite high. In the even that you have been rejected for credit by some companies you will be thought of as a significant credit risk. The issuing companies are taking a huge risk in lending you money through secured credit cards, and these interest rates are based on these risks. A secured credit card is not suitable for people with a solid and established credit rating as they can avail of credit cards with lower rates, rewards and other benefits. A secured credit card is for people who have had a bad credit or no credit to start with and need to mend their credit scores through a responsible show of credit card handling.