How a Secured Credit Card Works

A secured credit card requires you to give the card issuer a cash deposit as collateral in exchange for opening the account. Depending on the card, the initial deposit may be as little as $50 or as much as $500. Typically, your credit line will be the same or a little less than your deposit. Often the credit limit is 50% to 100% of the security deposit, though some card providers will offer credit limits of more than 100% of the security deposit as a promotional incentive. You may be able to increase your limit by giving the credit card company more cash or you could be rewarded with an increase for having a good payment history. An unsecured credit card requires no cash deposit and they generally offer much higher credit limits.

Secured Credit Card Fees

With some exceptions, most credit cards charge members some kind of fee and they tend to be higher for secured credit cards. When you’re comparing secured credit cards, one of the most important things you should pay attention to is the fee structure. Some of the fees you may be charged include an application fee, an annual fee, a monthly service fee, deposit fees, or transaction fees on purchases and late fees. Before you sign up for a particular card, you should ask for a complete fee schedule so you know exactly how much the card will cost. You also need to read the fine print carefully to make sure you’re not being charged for any unnecessary services, such as an insurance plan or a fee for increasing your credit limit.

Understanding Your Rate

Since secured credit cards are targeted at people with either no credit or bad credit, the interest rates tend to be much higher than you would get with an unsecured card. You may not think that having a high interest rate matters if you have a low credit limit, but if you’re carrying a balance from month to month, your purchases become much more expensive.

For example, if you owe $300 on a secured card with an APR of 29.99% and the minimum payment is $15, it’ll take you over two years to pay off the balance and you’ll pay more than $100 in interest in the process. Look for a card that offers you the lowest rate possible and pay extra attention if you’re signing up for a card with an introductory rate. With this type of deal, you get a low rate for a set amount of time, but it can increase significantly when the promo period ends.

Choosing the Right Card

When you’re looking at secured credit cards, it’s important to take in the big picture. The right secured credit cards can offer some of the best savings in terms of interest and fees. They report regularly to the 3 major credit bureaus, and you will be able to monitor your credit with access to your credit score and additional tools.

The Bottom Line

Not all secured credit cards are alike so it’s essential that you take the time to research your options to make sure you’re saving the most money possible. Once you get a secured card, make sure you’re paying on time and staying within your credit limit, which can help boost your credit. Over time, your credit should improve enough to qualify you for an unsecured credit card.

The post What You Need to Know about A Secured Credit Card appeared first on CardBenefit.

A Credit Card is a Contract

One of the most important things teens need to know about credit cards is that they create a contract between themselves and the card issuer. When you sign up for a credit card, you’re agreeing to repay the money that you spend, along with any interest, fees or penalties the card issuer may charge. If you fail to hold up your end of the bargain, it could have negative consequences for your credit score, not to mention your card issuer could sue you in order to get you to pay.

Credit Cards Are Tied to Your Credit Score

A credit card is more than just a piece of plastic. Every time you swipe your card to buy something, make a payment or apply for a new credit card, you’re potentially impacting your credit score. A credit score is a three-digit number that tells lenders how responsible you are when it comes to managing your finances. A high credit score generally indicates that you pay your bills on time, you know how to keep your spending in check and you’re not taking out too many credit cards or loans at once. A low score tells lenders that you’re a bigger risk financially, which can make it harder to get approved for new lines of credit or get the best interest rates.

Paying With Credit Can Cost You

Using a credit card is similar to taking out a loan. The card issuer agrees to lend you the money in the form of a line of a credit and you agree to pay the money back. As a condition of this agreement, the card issuer will charge you interest on what you spend. The higher your interest rate, the more money you’ll end up paying for the things you buy, especially if you don’t pay the balance in full each month. For example, if you charge a $100 pair of jeans on a card with an 18% interest rate and just pay the minimum of $15 per month, it’ll take you eight months to pay them off and cost you an extra $20 in interest and finance charges. If you’re not paying your balance in full each month and you’re continuing to add to your balances, the amount of interest that’s accruing can quickly inflate your overall debt.

Credit Cards Are Not a License to Spend

Just because you have a credit card in your wallet, doesn’t mean you should use it for regular shopping sprees. Credit cards are convenient when you’re short on cash or if you run into an emergency but they’re not that great for everyday spending, unless you’re paying your balance in full each month. In fact, using a credit card versus cash to pay can actually lead to overspending, since you’re not feeling the financial pinch right away. While it may be tempting to whip out your credit card to buy the latest gadget or that new pair of shoes, unnecessary spending can hurt your overall financial health.

Not All Credit Cards Are Alike

On the surface, all credit cards look alike but some may be better than others. For example, certain credit cards may charge a high annual fee or carry higher interest rates than others. Other credit cards may offer a rewards system that lets you earn points or cash back on your purchases. When comparing credit cards, it’s important to read the fine print carefully before you sign up. This ensures that you know exactly what the card will cost you, what benefits the card offers and how to make the most of its rewards program.

Final Word

Under the new CARD Act, you have to be at least 21 years old to get a credit card in your name unless someone co-signs for you or you can prove that you have enough income to make the monthly payments. Parents who are thinking of co-signing on a card for their teen should keep in mind that they’ll still be liable for the debt, even if they’re not the one who did the spending. It may be wiser to add your teen to your credit card account, which allows you to monitor your child’s spending. By taking an active role in teaching your teenager about how credit cards work, you’re helping build a solid financial foundation that will benefit them as adults.

The post Credit Card Tips for Teens appeared first on CardBenefit.