Secured Credit Cards, Pro vs Con

Are you pondering on whether you should apply for a credit card? Well, the answer quite simply is – ‘Yes’ – you should apply for a credit card (this is true for most people). The credit cards seem to have transformed our lives. In fact, one can term credit cards as a revolution. Today, you find ads in TV/newspapers/website/shops and almost anywhere and everywhere; all asking you to apply for a credit card. When you look around, you see that most people have credit cards. In fact, most people have multiple credit cards. Everyone seems to apply for a credit card. So, why should you apply for a credit card?

There are a lot of benefits associated with credit cards; however, the most important benefit is the convenience that they offer. For most people, this is the prime and the sole reason that instigates them to apply for a credit card. This wouldn’t have been the case a few years ago, when not many merchants accepted credit cards. However, today, most merchants do accept credit cards. So, instead of carrying a lot of cash on you (which is both inconvenient and unsafe), you can just carry a small piece of plastic with you.

Moreover, you get interest free credit i.e. you don’t have to pay the bills till the next monthly billing cycle. So, you can buy now and pay later (when your salary arrives) – a great reason to apply for a credit card. To add to that, there are certain merchants that offer interest-free installment payment plan i.e. you can make a big purchase today and pay for it in installments on your credit card. So credit cards works as instant long term loan too (not just a monthly loan). Yet another reason to apply for a credit card is the discounts on shopping. This is made possible by the tie-ups between credit card companies and the merchants. So credit cards offer many benefits.

There are various ways in which you can apply for a credit card – you can apply for a credit card in person, you can apply for a credit card on the internet and you can apply for a credit card on phone too (by asking the representative to meet you). You will as such be approached by a lot of sales representatives, all asking you to apply for a credit card with their company.

To apply for a credit card, you will need to fill-in a credit card application form (which is easy to fill and the representatives of the credit card company will assist you in that). When you apply for a credit card, you basically enter into an agreement with the credit card supplier (the form that you fill when you apply for a credit card is actually an agreement). After you have submitted your application, the credit card company conducts certain checks to determine your credibility; and if everything is fine, you receive the credit card.

So, applying for a credit card is easy and to apply for a credit card or not to apply for a credit card is a matter of personal choice. However, for most people who don’t have any credit card, the recommendation is “Apply for a credit card”.

Just browse through the daily newspaper and you will be overwhelmed by the number of credit card offers advertised. Move around the town and you will find credit card offers being advertised everywhere. Same is the case is with television which seems to host a number of credit card offers too. So, the credit card offers are there everywhere. Why are there so many credit card offers? Well, quite simply because credit card business is a highly profitable business for the credit card suppliers.

In this situation, when there is no dearth of credit card offers, which is the best credit card offer?

There is nothing like a best credit card offer, really. A better question to ask would be – ‘Which credit card offer is the best for me?’ The spending habits of one person are different from that of another person. Their living styles vary and hence their needs vary too. So for deciding on which credit card offer is best for you, you need to evaluate your needs vis-à-vis your lifestyle and your spending habits (and not go just by the recommendation of someone).

For example, if you frequently travel by air, a co-branded airline credit card might be more suited to you than the general purpose one. These airline credit cards offer discounts, rebates and other kind of rewards when the credit card is used for making payments (the rewards are even higher when these credit cards are used for paying for the airline tickets or other airline products).

Similarly, if you have a favorite retail store where you do a lot of your shopping, it would be beneficial to check if the retailer is a credit card supplier too and if there is a credit card offer that suits you. A lot of big retail chains do offer co-branded credit cards to their customers and these credit cards offer rebates/discounts etc when they are used for making payments at the retail store. As such, you get reward points for making payments at any place but the rewards are higher on the payments made at retail store.

On similar lines, we have credit cards for gas stations and grocery stores too, which you can opt for if you have a favorite gas station or a favorite grocery store where you shop a lot.

So, if you look around, you will find a lot of lucrative credit card offers. However, this doesn’t mean that you enroll for all the credit card offers. You need to first evaluate your needs and rank them. Then you need to evaluate what all credit card offers suit your needs. And finally you can make your choice and go for a credit card offer that covers most of your needs and gives maximum benefits.

Some of us though don’t like the idea of being in debt. Here is where the idea of a secured credit card comes in.

Secured credit cards are another very popular breed of credit cards. Secured credit cards, as their name suggests, are secured. Well, they are secured for the credit card supplier, really. Secured credit cards require you to open an account with the credit card supplier and maintain some cash balance in that account. This cash balance acts as a security for the supplier of secured credit card. Your credit limit is dependent on the amount you hold in the account that you have started with the supplier of secured credit card. This is generally between 50 to 100% of your account balance. So in that sense, secured credit cards are not really credit cards (since they don’t offer you any credit really). For this reason, the secured credit cards are sometimes also referred as debit cards.

Why is the concept of secured credit cards so important?

As we know, credit card debt is a raging problem which is caused by improper usage of credit cards. Such people end up spoiling their credit rating to an extent where they cannot get another unsecured credit card (that is what we call the commonly used credit cards). Even after they have paid off their dues and cleared their debt, their credit rating still haunts them. For such people, secured credit cards are a boon.

Secured credit cards present them with an opportunity to not only get a credit card in the first place but also to improve their credit rating by using the secured credit card in a disciplined way (paying their dues in time, controlled spending, utilizing a maximum of 70% credit limit etc etc). As they continue with these good habits, their credit rating gradually improves over a period of time. Hence secured credit cards provide them with the means of rectifying their mistakes (credit rating).

It’s not just the people with bad credit rating who go for secured credit cards. Some people go for secured credit cards because they don’t want to bother themselves with the bills etc for credit cards. They don’t like to even fill-up application forms for unsecured credit cards.

Then there are some who just don’t like to borrow money (even if it means borrowing from a credit card supplier by using their credit card). However, such people are very rare to find.

Some people just go for secured credit cards because they have heard a lot of horrifying stories on credit card debt – maybe someone from their family or one of their friends was devastated by credit card debt and they don’t want to repeat the mistake. So they decide to go for a secured credit card.

Whatever be the reason for going for it, the secured credit cards are surely popular too