For many parts of the world, using a credit card is a typical method of payment for a wide range of products or services. It allows a consumer to pay for transactions without carrying around enormous wads of cash. The same card can be used to pay for anything from shoes to bags, from home entertainment systems to cars, from restaurant meals to airplane tickets, and so much more.
However, acquiring a credit card may not be a simple process for everyone. This can be true for individuals who have practiced paying only cash and have never taken out loans, and are attempting to get their first credit card — because they have no credit rating yet, it may be difficult for card companies to establish the level of risk they present. On the other hand, people who do have existing but poor credit ratings (those who have too much debt like student and car loans, a mortgage, or more than one credit card with late payments) will also meet some obstacles in acquiring a new card. But there is still one option that they can consider in obtaining a credit card for their financial needs, and that is by applying for secured cards (also known as bad or low credit credit cards).
Secured cards are an ideal solution for individuals who need to establish a positive credit history or improve their current credit rating. The main difference between signing up for a secured card and a more conventional one is that the former requires a security deposit upfront in order to open the account. The deposit amount varies from one issuer to another, and they may also differ in the credit limit they will allow — some will have credit limits equal to the deposit amount, while others may allow a slightly lower or higher percentage for the limit.
The security deposit is meant to assure lenders that they will hold the card user's money as collateral in case payments are missed — the risk will be much lower and will be more favorable even if some losses will be incurred.
As long as it is used responsibly, this type of credit card can be an effective and valuable tool for helping someone to improve his less-than-stellar credit rating. If, for example, you were able to obtain an unsecured card with reasonable interest rates and finance charges that make it easy for you to make prompt payments, then your credit score can be expected to improve after about six months. With careful management, you may be offered to upgrade to an unsecured account in a year.
In today's modern world, credit cards are some of the most practical payment and identification tools for a wide variety of transactions, but if they are abused, they can cause major financial headaches for years. Learn to pick the best financial solutions for your needs in order to stay away from debt and all its related troubles.
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