Secured Credit Cards
The average person's
mailbox is bombarded with offers
for new credit cards offering pre-approved
credit cards with sky-high limits
that are more than any of us should
ever need.
But what about folks who have bad
credit, or even no credit? For these
people, getting approved for a credit
card can be next to impossible.
That's where a secured credit card
can come to the rescue.
How secured credit cards work
If you have a shaky credit history
that you're trying to fix,
or haven't got a credit history
at all, lenders offer secured credit
cards as a risk-free way for them
to provide you with the opportunity
to start building (or rebuilding)
credit. You simply need to deposit
money into a savings account, which
in turn is used as collateral for
a line of credit. The lender has
a safety net in that collateral
and you as the customer have the
chance to create a favourable
credit profile.
Be wary of the costs
The downside to this type of credit
card can be the cost. Annual fees
vary and are often up to $75 per
year. Interest rates are typically
higher than traditional credit cards
too. But if you want to build or
rebuild your credit history, a secured
card can make sense.
After a certain period during which
you've shown responsibility
through making payments on time,
some lenders will give you interest
on the money you've had tied
up as collateral.
Credit limits can also be increased
and some programs even allow you
to eventually 'graduate'
to a regular credit card.
A newer offering that is appearing
in Canada is the ability to draw
against the equity in your home
rather than put down a deposit.
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