Let us understand how secured Credit Cards are beneficial in rebuilding maligned Credit ratings. For this we need to know first what secured Credit Cards are.
Secured Credit Cards are very much similar to the more commonly used unsecured Credit Cards, but with one basic difference. In secured Credit Cards, the cardholder must first open a savings account and deposit money in that account. This account would act as the collateral for the credit card. Every time a transaction is made using the secured credit card, money is deducted from the savings account. In this way, the cardholder is actually using his/her own money. The card becomes void when the balance becomes zero. In such an eventuality, the cardholder must put some more money into the savings account so that the card can be operated again.
Apart from that, the secured credit card has the same features and flexibilities as the normal Credit Cards. These Credit Cards are also accepted worldwide by all the merchants who accept Credit Cards. One good point is that nowhere on the card is it mentioned that it is a secured credit card. So that remains a secret between the cardholder and the issuing bank.
If the cardholder ever defaults on the secured credit card, then the bank would take money from the savings account and pay the balance. This money would be entitled to an interest, but there would be a restriction on removing it from the account at any time. The issuer would have the right to determine the amount of the deposits.
As with normal Credit Cards, holders of secured Credit Cards also must pay their bills on time to keep good credit scorings. Late payments would have negative points, and there would be fees and interests if the balance is not paid each month. If the record is good, the limit could be increased, or an unsecured credit card with a lower limit could be offered. This is one of the first steps in repairing the Credit ratings.
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