What is Secured credit cards ?

A secured credit card is that kind of credit card which is secured by a deposit account. The card holder deposits a certain amount to get a credit card. Usually, the cardholder must deposit between 100% and 200% of the total amount of credit enjoys. For instance, if the cardholder against his/her $1,000, he will be given credit limit in the range of $500–1,000. In some cases, credit card issuers offer incentives even on their secured card portfolios. In that cases the credit card holder required deposit may be significantly lesser amount than the required credit limit.

It can be as low as 10% of the desired credit limit. Typically, this deposit is retained in a special savings account. Credit card issuers offer this Reason behind of depositing a required amount is that credit card issuers observed that law-breaking were notably abridged when the customer recognizes something to lose if the balance is not repaid on due course. The cardholder of a secured credit card has to make regular payments, as with a regular credit card. However, if they are default on a payment, the card issuer has the opportunity of recovering the cost of the purchases paid to the cardholder out of the deposit. The advantage of the secured card for an individual with negative or no credit history is that it allows building a positive credit history.

In secured card the deposit is retained in the hands of the credit card issuer as security. in the event of default by the consumer, the deposit will not be debited simply for missing one or two payments. Usually the deposit is only used as compensation when the account is closed, either at the request of the customer or due to severe negligence (150 to 180 days). For example, if an account which is less than 150 days negligent will continue to accrue interest and fees, and could result in a balance which is much higher than the actual credit limit on the card. In these cases, the total debt may exceed the original deposit amount and the cardholder not only losses their deposit but also leave with an additional debt.