Applying for a Credit Card? Here Are 6 Things You Need to Know First

Applying for a Credit Card? Here Are 6 Things You Need to Know First

It can be difficult to get approved if you’re applying for a credit card for the first time. Without a credit card, simple tasks such as renting a car or reserving a hotel room become more complicated. It seems like a catch-22 — it can be hard to get approved without a solid borrowing history, but unless a card issuer gives you a chance, how are you supposed to build credit?

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Applying for a secured credit card may help. With responsible use, a secured credit card like the Citi Secured Mastercard may help you establish a credit history and build your reputation as a borrower who may be a suitable candidate for other types of loans.

1. What is a secured credit card?

A bank that offers a secured credit card requires the applicant to make a deposit before it will open the credit card account. This deposit is called collateral. If the cardholder uses the credit card but doesn’t make the payments as promised, then the card issuer can keep the deposit for any outstanding balance. This arrangement protects the card issuer from default. But if the cardholder makes payments as promised and otherwise abides by the cardholder agreement, then the card issuer may report those timely payments to the credit bureaus. That can help a new cardholder build a stronger credit history.

Because secured credit cards may help borrowers with limited credit histories, they may be a smart and strategic choice for recent college graduates, residents new to the country, and others who have never been approved for a loan.

2. What is an unsecured credit card?

An unsecured credit card does not require the cardholder to give the card issuer a deposit. For this reason, unsecured credit card issuers are more selective during the application process and it can be more difficult for an aspiring cardholder to get approved. That’s because card issuers prefer applicants who have established a credit history of repaying loans on time.

3. What is the difference between secured and unsecured credit cards?

Aside from the deposit, secured and unsecured credit cards work in similar ways. A cardholder can spend up to the credit limit established by the card issuer, provided the cardholder makes regular, on-time payments and abides by other cardholder agreement terms. Secured and unsecured cardholders can also use their credit cards anywhere that accepts them, provided they don’t spend over their personal credit limit.

Cardholder terms vary widely between all types of credit cards, whether secured or unsecured. For example, cardholders often pay different interest rates. Some cardholders have higher credit limits while other cardholders can take advantage of special promotions offered only by their card issuer.

4. How much is the deposit for a secured credit card?

How much of a deposit is required depends on a wide variety of factors, but banks that offer secured credit cards can require collateral ranging anywhere from $200 up to $5,000. In many cases, the size of the deposit is equal to the size of the credit limit. That means an applicant who is granted a $500 secured credit card limit may need to give the credit card issuer $500 in monetary funds, up front, as collateral to secure the deposit.

If the secured cardholder abides by the terms of the cardholder agreement and establishes a responsible borrowing history, the card issuer might transition the cardholder to an unsecured credit card. If this occurs then the card issuer may return the security deposit to the cardholder.

5. When would a secured credit card make sense for me?

If you’re just starting out in the world of credit and have never had a credit card or loan before, then a secured credit card may make sense. Before applying, consider the card’s terms and conditions carefully.

6. How can a secured credit card help rebuild my credit history?

Regular, on-time payments play an important role in maintaining credit health. Therefore, a secured credit cardholder who establishes a pattern of making regular, on-time payments can help build credit history. Other factors also play a part in building credit, so make sure you understand how credit works before applying.

Finally, as you consider a secured credit card, verify that the card issuer reports your activity to the credit bureaus. Card issuers that report to credit bureaus give you the best opportunity to establish your credit history.

Source:- usnews
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