Credit cards are some of the most used payment cards around the globe. Others include debit, gifts, and prepaid cards. A credit card differs from other payment cards because it allows you to borrow finances from your card issuer. You can get a credit card from a bank, credit union, or any other financial company. Usually, you are eligible for such a card if you are at least 18 years old. You will learn how to use secured credit card later.
You might be wondering what a secured credit card is. For your understanding, we have two types of credit cards: secured and unsecured. Each one of them has its terms and conditions for getting it. The most common credit cards are the unsecured ones as long as you qualify. Credit cards are not like the other cards you can get without limitations.
Nowadays, you can apply for a credit card online and go through the eligibility criteria within minutes. Financial companies have introduced online services where account holders can receive services remotely. That means you can apply for your card right from your coach other than walking to your branch. Above all, online banking saves a lot of time.
What is a secured credit card
A secured credit card is a type of credit card that allows you to deposit money to act as security when getting the card. The deposit amount acts as security for the amount of money you borrow so that if you cannot borrow, your card issuer can recover their funds from the deposit. They usually lock it as you use your card.
Usually, secured credit cards are for those who want to build their scores. Such people have no borrowing history and find it difficult to borrow from financial companies. When you use your secured card well, you can increase your scores within six months and slowly gain many scores over time. Again, the deposit you make for your secured card determines your credit limit.
When you utilize your card well to qualify for an unsecured credit card, your deposit amount becomes available in your account to use.
How does a secured card differ from the unsecured one
I have mentioned that we have secured and unsecured types of credit cards. You know what a secured card is. But how are secured cards different from unsecured ones? There are a few ways that the cards differ from each other. They include the following.
- Secured credit cards need a security deposit, while unsecured cards require credit scores. The scores are the numerical expressions of an individual’s creditworthiness.
- For secured cards, your deposit amount determines your credit limit. The more you deposit. The more your credit limit. For unsecured cards, your scores determine your credit limit.
How are secured and unsecured cards similar
Despite the two cards having some differences, they have several similarities, which include the following.
- They both allow you to borrow finances from your issuer.
- They allow you to increase your credit scores with time.
- Secured and unsecured card issuers report your card usage to the credit bureaus.
- They require you to settle your debts at the end of the borrowing period.
- They have a credit limit: the maximum amount of money you can borrow with your card.
How to use a secured credit card
When getting a credit card, you should know how you can use it. There are various ways you can use your card. They include the following.
i) Buy goods and services
You can utilize your card to purchase goods and services from various outlets. The card allows you to buy goods at grocery shops, supermarkets, filling stations, hotels, and restaurants, among other places. Most places that allow you to buy with cards give rewards such as cashbacks, miles, and points when you spend specific amounts.
ii) Withdraw money
You can use your card to withdraw finances from an ATM. The card usually has a PIN, just like other ATM cards, to authorize the ATM withdrawals. You only need to push the card into the slot, navigate the withdrawal money tab, and select the amount you want to withdraw.
You can also withdraw finances from your card over the counter. You only need to visit a financial institution that accepts the card issuer together with your identification document, then head to the teller who will assist you in the withdrawal process.
iii) Bill payment
Suppose you pay bills for electricity, water, internet, travel agency, and so on. In that case, you can make your payments using your credit card. You do so either by phone call, online if your card issuer allows you to pay bills online, or at physical offices. You can enable recurring payments, so you do not have to remember your bill payments now and then.
iv) Get convenience checks
All credit card issuers allow you to request convenience checks to make special payments. Maybe you need to make a payment that does not accept cards and have no cash to execute the payment process. In such a case, one can get a check and pay. Convenience checks operate like regular checks, only that they use your credit card’s limit other than your bank account’s balance.
v) Grow your scores
Another use of a credit card is to grow your scores. As I mentioned, the cards are suitable for people with poor scores. Even people with poor scores can get them. You can raise your scores within a few months when you use your card well.
Financial experts estimate that you can grow your scores within six months. Increasing your scores ensures you qualify for bigger loans and high-limit unsecured cards.
Are credit cards necessary
The cards may not be suitable for everybody. If you do not need to borrow money and have good scores, you do not need one. However, if your monthly salary cannot cater to your needs, you need a credit card to boost you on the way.
A credit card allows you to borrow finances from your issuer. A secured credit card is a credit card that allows you to deposit money as security. The card is necessary for building credit scores. You can get one from a bank, credit union, or other financial companies. A secured card differs from the unsecured one in that the secured one relies on a security deposit while the unsecured one relies on your scores.