Improve Your Credit Series: 8 Secured Credit Card MythsBy Caitlin in Credit
Secured credit cards are often confused with other forms of credit and their uses misinterpreted; it’s no wonder why secured credit cards have become a forgotten and misunderstood financial tool. There are countless reasons why secured credit is a great option for almost all financial situations, don’t let the misconceptions prevent you from getting the credit you need. Here are 8 secured credit card myths that you should be aware of before you decide whether or not secured credit is the right option for you.
Myth 1: Secured credit cards ruin your credit worthiness.
Probably one of the biggest myths about secured credit cards is that they’ll ruin your credit worthiness. There are lots of people who believe that if a secured credit card shows up on your credit report that you’ll be flagged as an irresponsible borrower. This is a completely untrue, your credit activity from a secured card will be report to the credit bureaus in the same way that a traditional card’s activity is. Whether you have a secured card or an unsecured card has no effect on your credit score.
The truth is secured credit cards are a great tool to help people with bad credit or no credit at all build their credit history and improve their credit score. Because secured cards require a deposit they are often easier to get than traditional cards, this makes them perfect for people who have bad credit and are having trouble being approved for new credit. Just like traditional credit cards secured cards need to be used responsibly in order to positively affect your credit score.
Myth 2: Secured credit cards are the same as prepaid cards.
To use a prepaid card the owner must add value to it by loading money onto it, then they can spend it as they need, once the money has all been spend they must reload the card. A secured credit card requires a deposit before it can be used but you’re not spending the deposit, it acts as collateral just in case you aren’t able to make your payments. This is obviously where the majority of people get confused, to make it easier for you to remember think of what each card actually is. Prepaid cards are debit cards (you’re spending the money you actually have) and secured credit cards are credit cards (your using credit to make purchases).
Remember that prepaid cards aren’t reported to the credit bureaus so if you’re trying to improve your credit score a prepaid card won’t help you.
Myth 3: Secured credit cards don’t require payments because of the deposit.
Secured credit cards must be treated exactly the same as traditional credit cards. Secured credit cards require you to make at least your minimum payment on time each month. The deposit that you have to pay to your card’s issuer is simply a form of collateral and doesn’t mean you don’t have to make your monthly payments on time.
Myth 4: Secured cards are only for people with bad credit.
Secured credit cards are a really great way to improve a bad credit score and it’s possible that you’ve only ever seen them discussed in relation to credit improvement but there are endless reasons why a secured credit card is a great option for people who don’t need credit help. If you’re young and have no credit history, new to Canada and have no credit history or simply just need to start building a credit history then a secured credit card can help you start. Secured credit cards typically come with low limits so if you don’t need a high credit limit or don’t want the temptation then a secured credit card is a great option for you.
Whatever you current credit situation might be, don’t be afraid or embarrassed to get more information about secured credit and how it might work for you and your finances.
Myth 5: Having a secured credit card makes it hard to get a traditional one.
Lots of people think that having a secured credit card will prevent you from being able to get a traditional credit card. This is of course a myth, having a secured credit card won’t negatively impact your credit future in any way. Future lenders do not care if you had at one time or still have an active secured credit card. In fact, like we’ve discussed before, a secured credit card is a responsible way to start improving your current credit situation.
Myth 6: Reputable lenders only offer traditional credit cards.
Most reputable big name banks and credit card companies offer both traditional credit cards and secured credit cards, and those who don’t, it’s not because of any hidden secret reason. Secured credit cards are credit cards and they work in practically identical ways to traditional cards. They are simply another form of credit, a financial tool that should be used responsibly in the same way that a traditional credit card is used responsibly.
Myth 7: Secured credit cards always have high interest rates.
A secured credit card is a credit card so yes there are some companies that will only often high interest rates. But just like with traditional credit cards, you need to shop around and find a secured credit card with the right interest rate for you, don’t settle just because you think all secured cards come with high interest.
Myth 8: Your deposit is gone forever.
A deposit for a secured credit card is just like a deposit for anything else, if you use your secured card properly and follow the terms you’ll get your money back. If you default on your payments, your deposit will be taken and if you close your account with a balance your deposit will be taken. But if you decide to close your account and pay off the remainder of your balance then you will get your deposit back.
Secured credit cards are often seen as a negative thing, when in reality they are not. We want you to understand what exactly a secured credit card is and how it can help you and your financial situation so you can make an informed decision for yourself. Secured credit cards are a great financial tool, so get out there and find one that works for you.