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When to Get a Secured Credit Card

Secured credit cards work just like regular credit cards – you make purchases and payments. However, there's one big distinction — with a secured card, you have money pledged in an account that is held as collateral for your credit line.

The secured funds are equal to the limit of the card. For instance, if the secured credit card has a $500 limit, your bank or credit union will put a hold on $500 in your account (these funds can be in your Savings, a Certificate Account, etc. – exact rules will vary by institution). While this $500 is still in your account, it is not available for you to spend. Should you not be able to make your credit card payments, your bank or credit union can use these funds to cover your outstanding debt.

While secured credit cards aren't right for everyone, they are the perfect choice in the following three situations:

Teaching Teens about Credit

A secured credit card can be a great way to teach teens how to use credit responsibly before they head off to college or out on their own (NOTE: You must be 18 years or old to have a credit card).

Due to the prominence of online shopping and in-app purchases, most teens want to have their funds available on plastic, but with a traditional card, there is always the threat of overspending. Shoppers of all ages are prone to spending more when they use a credit card, and impulsive teens may be even more likely to overspend.

However, if you set up a secured credit card for your teen, you can be certain they can't spend beyond the set limit. They can only spend up to the amount already secured in their account. This arrangement can be a great way for your teen to test drive a credit card without having all the responsibilities associated with a traditional card.

You Want to Avoid Overspending

If you don't have a lot of credit lines in your credit history, a secured or traditional credit card will help you to establish a credit history. Using a credit card for small purchases, such as gas for your car and paying off the balance every billing cycle, is a great start. However, this feat can be hard to accomplish with a regular credit card. With a regular card, there is always the temptation of overspending.

In contrast, if you have a secured credit card, you know that you aren't getting into debt over your head. The funds to pay off the card have been set aside, so you know that even in a worst case scenario, you can always pay off your credit card.

You're Rebuilding Your Credit

Life events from losing a job to experiencing a death in the family can lead to excessive debt if you are not prepared. This can lead to charge-offs, delinquent loans or even bankruptcy in severe situations. Luckily, there are all kinds of ways to rebuild your credit, and a secured credit card can help you get started.

When you take out a secured credit card, the bank or credit union that issued the card will report to the credit bureaus with your credit card limit, monthly balance, and your payment history. If you pay your monthly bills on time, your credit history and your score will start to improve.

How to get started

CAMPUS USA Credit Union offers secured loans and credit cards to help new borrowers build their credit. Visit www.campuscu.com/get-started to apply online, call us at 800-367-6440 or visit one of our convenient service centers!

 

 


By Campus USA at 29 Nov 2019, 08:49 AM

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