Disadvantages Of Secured Credit Cards

If you find yourself ineligible for a traditional credit card, a secured version may be your only choice.

A business secured credit card can actually improve your companies credit rating over time, just so long as you use it sensibly. Even if you have had major financial problems in the past it is likely that you will still qualify for such a product because the issuers are covered against potential losses.

Secured cards do have some disadvantages though. Chief among these is the fact that you have to pay a security deposit to get the card in the first place. If you want a card with a $1,000 limit, you will need to have at least that amount of cash available as security. Some providers will only allow you a percentage of your deposit as your credit limit. Although this sum is technically still available to the business through the card itself, you will have to pay interest on any borrowing that goes over the grace period and there may be additional costs in the form of annual fees and insurance charges.

As secured cards are usually given to those thought to be at greater risk of default, interest rates are usually significantly higher than those of traditional credit cards. These charges can be avoided if payments are made in full each month.

It is important to check what is being done with the money that you have handed over as a security deposit. The best companies will pay interest while the worst will pay nothing. This money can be held for more than a year and during this time the effect of inflation will reduce its true value. Interest may not make up the full loss but it will go some way towards mitigating it.

If you want your credit rating to improve at the fastest possible rate, you should try to pay off your balance in full each month. This means you will only ever be able to spend if you know you have the money available to cover your bill.

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