A Comprehensive Guide for Understanding Secured Credit Cards

What are Secured Credit Cards?

Secured Credit Cards may require the presence of ‘surety’ formulated with the addition of a third party in addition to borrower and the lender. Surety is defined as a third-party entity responsible for the ultimate repayment of the credit card balance. In certain cases, a surety may also be defined as a ‘guarantor’.

In the event of the Principal’s failure to repay the credit card balance, the responsibility of repayment will become that of the Surety. Surety loans allow for heightened insurance for the lender with regard to the reduction of the risk of failure to satisfy outstanding credit card balances.

Additional Stipulations of Secured Credit Cards

In addition to the notion of surety, the following stipulations may be applicable to the approval and receipt of Secured Credit Cards:

Individuals considered to possess a ‘high risk’ with regard to the approval of Secured Credit Cards are determined in accordance with the lending institution’s analysis of the probability of repayment latent within the applicant.

Credit Scores and Credit Histories classified as ‘poor’ or ‘low’ are considered to result from a variety of infractions undertaken with regard to the possession of a credit card. The mention of defaulted or habitually-late payments and reckless overspending will typically contribute to a lower credit rating. However, the absence of credit history may also be perceived as ‘low’ or ‘poor’ credit ratings.

In certain cases, individual applicants will be required to furnish a deposit prior to the receipt of Secured Credit Cards. A deposit allows for the alleviation of financial risk absorbed by the lending institution. In the event that repayment is defaulted or unsatisfied, the institution will undergo repossession of the deposit.

Unsecured vs. Secured Credit Cards

In contrast to Secured Credit Cards, unsecured credit cards are synonymous with the traditional definition of a credit card, which is identified as a method of credit that lacks intrinsic ties or reliance on preexisting monetary savings. The notion of unsecured credit allows for the recipient to undergo the spending, exchange, and transfer of monies with regard to the eventual and implicit repayment of an outstanding balance. Unsecured credit cards are generally viewed as loans.

Secured Credit Card Application Process

Upon applying for Secured Credit Cards, both the credit score, as well as the credit history, belonging to the individual applicant will undergo analysis and assessment from the applicable lending institution. The following may be applicable to the approval process of a Secured Credit Card:

Annual Percentage Rate (APR) for Secured Credit Cards

The Annual Percentage Rate is a form of credit card interest defined as an expressed and established percentage of the gross balance latent within individual Secured Credit Cards. APR is added to the full amount of repayment that is required for the satisfaction of outstanding balances. The APR designated to Secured Credit Cards will typically be higher than the median APR designated for credit cards issued to those with higher credit scores.

Credit Limits for Secured Credit Cards

Credit limits for Secured Credit Cards are finite, monetary amounts of credit that may be undertaken by individuals in possession of such credit cards. While credit limits designated to Secured Credit Cards may be significantly lower than limits allowed to individuals in possession of higher credit scores, prompt repayment and responsible usage will typically result in increased credit limits.

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