With so many consumers looking for ways to rebuild their credit, secured and prepaid credit cards are growing in popularity. Some people swear by them, and others try to avoid them. If you’re new to credit cards, you may have wondered how a prepaid card differs from a secured card, and how either kind can be used to build credit.
Secured credit cards work much like regular credit cards, but with less risk to the card issuer. The cardholder deposits money into an account, which is used to secure a line of credit. Typically, the cardholder needs to deposit enough money to cover 100-200% of the card’s credit limit. For example, a one thousand dollar deposit would result in a credit limit of five hundred to one thousand dollars.
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Have you recently acquired your first credit card? If you have, you may be excited. After all, there are a number of perks to owning a credit card. With that in mind, if you are not careful, your credit card could, literally, become your worst nightmare. To prevent yourself from falling victim to credit card debt, you will want to take the time to familiarize yourself with the proper use of a credit card.
When it comes to the proper use of a credit card, the most important thing that you can do is know what you are getting into. This can be done by thoroughly examining your credit card contract or your terms of services agreement. This can give you an idea as to what actions you should or shouldn’t take with your own credit card. You will want to be on the lookout for any additional fees, penalties, and so forth. By processing all of the information in your contract or terms of service agreement, you can not only know how your credit card should be used, but you also know the consequences for improper use.
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If you’re like a lot of parents, your first thought upon reading this title was, “Are you crazy? Why would a child need a credit card?” But believe it or not, the reasons extend well beyond the shopping mall.
Credit cards are handy for children traveling abroad or even locally with school or a youth group. They won’t be renting cars, but they will be eating and almost every fast food chain now accepts them. It’s also something your child can keep handy just for emergencies. There are plenty of other reasons why minors should have credit cards, including as a tool to teach financial responsibility.
Giving a credit card to a minor really is a decision only parents or guardians can make. If this is something you’ve been considering, here are some options to consider.
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Many times people who have never had a credit card or any other form of credit think that the banks will turn them down for lack of credit history. While this may be true in some cases, no credit does not mean you have “bad credit”, and provided you have a steady income, chances are you will be able to obtain a credit card.
In fact, there are many banks that routinely offer Visa or MasterCard credit cards to first time applicants. Everyone must establish a credit history somewhere! If you have employment or other means of steady income, select a bank and apply for their credit card. Don’t run out and apply at ten different banks attempting to increase your chances, because that will actually have the opposite effect. Each time you apply for credit, whether it is for a credit card or a loan of some sort, the lender makes an inquiry on your credit report. Rejections show up on your credit report, and multiple rejections send off a red flag to potential creditors that you are desperate for cash- and therefore might have difficulty repaying the credit.
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When deciding upon what credit card is the best for you, don’t rule out secured credit cards. In fact, many people are finding secured credit cards to be the best option. Some people choose a secured credit card when they have had credit problems in the past, and obtaining a traditional credit card would be difficult if not impossible. Secured credit cards are great options for teaching your teenagers and college students about responsible financial spending. Secured credit cards help control your spending, since you must have the money before you can make a purchase, unlike a traditional credit card that you don’t have to have the money to back up your purchases.
So, you may be asking why bother with a credit card at all, if you have to have the cash available to fund your secured credit card. In our modern times, it is becoming increasingly difficult to do certain things without having access to a credit card. Have you ever tried renting a car or purchasing an airplane ticket without a credit card? Ever tried booking a hotel room without a credit card?
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Prepaid credit cards are new twists on the popularity of plastic money. The name says it all. They are cards that function just like credit cards in nearly all aspects, but you have to pay the spending limit upfront. It’s like a prepaid phone card you can use to buy anything at all.
There are a lot of benefits to a prepaid credit card, as well as many different applications for the technology. The most obvious benefit is that you can’t go over your limit. There is no such thing as over drafting from an account. When the account is empty, you simply cannot use the card. You have to refill it before any more purchases can be made. This is very good for people who have poor credit history or impulsive spending habits. It can help people avoid debt and be a good first step in rebuilding a low credit score.
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Most of us get a credit card on our name when we go to college or when we are in our senior years of high school and all of us stumble into the same types of difficulties when it comes to finding an issuer and managing the credit card. Most banks ask for a prior type of credit history that most of the time lacks and for some type of warranty that we will be good payers. It is true, finding the right issuer and building a credit card history is not easy, but it can be done.
When you apply for a credit card the bank will usually ask you questions regarding your previous credit lines. Most young people do not have any type of credit history and this makes the banks unable to positively respond to their application. There are two things that you can do to go around this problem. One is looking for an issuer with a special offer, as there are many banks that offer credit cards for people who are just starting their first credit line. It is true that you will not have an extended credit line at first, but if you prove to be a good-payer and a loyal customer to the bank, you are likely to receive more credit line in time. If, however you cannot find an issuer that will give you a first chance with credit lines, you will need to build a credit history yourself. You can do this by getting credit cards from gas stations or from stores. There are gas stations, as there are supermarkets and department stores, which offer fidelity credit cards to their customers. Once you become the owner of such a card, make sure to balance it wisely and after a couple of months you can re-apply for a bank-issued credit card.
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