Credit and Debit Card Ratings

Secure Your Credit Future: Get a Head Start with a Secured Credit Card

A secured credit card can be a starter kit for your financial life

By Nancy Munro

 

It’s hard to imagine these days, but Michael Jordan wasn’t always a great basketball player. After all, the future Hall of Famer didn’t even make his high school squad one year. Which is all to say that everyone, not just Michael Jordan, progresses in life from a mere novice to (we hope) some level of expertise and skill. All it takes is steady practice and determination.

The same could be said of our financial lives. Sometimes, we need to prove ourselves with one financial product before graduating to another that offers both more perks but also requires more responsibility – sort of like starting on the junior varsity team before making the jump to the varsity. That’s all a pretty apt way of describing the difference between so-called secured credit cards and the unsecured variety that most people are familiar with. As you’ll soon see, starting your financial life with a secured credit card can be just like getting a chance to play on the JV team while the varsity coach watches.

First off, how is a secured card different from a so-called regular credit card? Typical credit cards allow holders to essentially borrow money, up to a set credit limit. The money borrowed can be paid back each month or, more likely, over the course of many months or even years, all the while earning the card issuer a tidy amount of interest. A secured credit card functions quite differently. Issued by a bank or other financial institution, a secured card requires that a certain amount of money be placed in the account before the card is activated and used. The money placed in the account is exactly the amount available for use – there’s no credit limit over and above what you put in initially.

The reason secured credit cards function like this is pretty simple. There are plenty of people who have either no credit history or whose past use of credit cards has been shoddy enough that banks don’t want to give them another one. In other words, there are lots of people banks don’t want to lend money because there’s too high of a risk that they won’t get paid back. But that risk is eliminated with secured cards because users can only spend the money they fund the card with upfront.

Because of that low-risk structure (at least for the banks), secured credit cards are relatively easy to get. But unlike unsecured cards, which do not require a deposit to use, secured cards have a wide range of fees, charges for everything from applications to insurance. Take some time to comb through BestPrepaidCards.com to see which cards have the best and worst fees.

But here’s the good thing about a secured credit card. For those with either little or a checkered credit history, a secured credit card is a tool to prove that you can be trusted with the sort of credit limit a regular card offers. But you actually do have to prove that you can make timely payments on your secured credit card account.

But if you do that, will the coach – or, in this case, the three major credit bureaus who monitor repayments and hand out the all important credit scores that banks use to determine whether someone is a safe bet to offer a credit card – actually be watching? We checked with the three major credit bureaus, TransUnion, Experian and Equifax, and only Equifax responded to say that payments made on a secured credit card are treated the same way as those made on an unsecured card. But given the relative uniformity of the three bureaus’ policies, it’s likely that Experian and TransUnion also look kindly on responsible use of a secured credit card.

To improve or build a credit history with a secured card, here are some things you can do:

  • Not all secured cards are equal. Shop around for the best (ie. lowest) fees possible.
  • If possible, try to get a card from an issuer that also offers unsecured cards. With a good payment history, it’s likely they’ll eventually offer you an unsecured card. According to Bankrate.com, it will take diligent users of a secured card about a year before they’re offered an unsecured card.
  • Once you get the card, use it a few times a month and pay the balance in full. In other words, prove that you know how to handle plastic.
  • The secured card is not the finish line. The annual fees and other costs with a secured card mean you are spending your money to spend your own money. Use the card only until a better (unsecured) offer comes along.
  • Don’t expect the same perks with secured cards as unsecured cards. Airline miles and other gifts and offers are not the norm when it comes to secured credit cards.

Author: Chris Warren

  • Secure Your Credit Future: Get a Head Start with a Secured Credit Card

    Secure Your Credit Future: Get a Head Start with a Secured Credit Card

    A secured credit card can be a starter kit for your financial life

    By Nancy Munro

     

    It’s hard to imagine these days, but Michael Jordan wasn’t always a great basketball player. After all, the future Hall of Famer didn’t even make his high school squad one year. Which is all to say that everyone, not just Michael Jordan, progresses in life from a mere novice to (we hope) some level of expertise and skill. All it takes is steady practice and determination.

    The same could be said of our financial lives. Sometimes, we need to prove ourselves with one financial product before graduating to another that offers both more perks but also requires more responsibility – sort of like starting on the junior varsity team before making the jump to the varsity. That’s all a pretty apt way of describing the difference between so-called secured credit cards and the unsecured variety that most people are familiar with. As you’ll soon see, starting your financial life with a secured credit card can be just like getting a chance to play on the JV team while the varsity coach watches.

    First off, how is a secured card different from a so-called regular credit card? Typical credit cards allow holders to essentially borrow money, up to a set credit limit. The money borrowed can be paid back each month or, more likely, over the course of many months or even years, all the while earning the card issuer a tidy amount of interest. A secured credit card functions quite differently. Issued by a bank or other financial institution, a secured card requires that a certain amount of money be placed in the account before the card is activated and used. The money placed in the account is exactly the amount available for use – there’s no credit limit over and above what you put in initially.

    The reason secured credit cards function like this is pretty simple. There are plenty of people who have either no credit history or whose past use of credit cards has been shoddy enough that banks don’t want to give them another one. In other words, there are lots of people banks don’t want to lend money because there’s too high of a risk that they won’t get paid back. But that risk is eliminated with secured cards because users can only spend the money they fund the card with upfront.

    Because of that low-risk structure (at least for the banks), secured credit cards are relatively easy to get. But unlike unsecured cards, which do not require a deposit to use, secured cards have a wide range of fees, charges for everything from applications to insurance. Take some time to comb through BestPrepaidCards.com to see which cards have the best and worst fees.

    But here’s the good thing about a secured credit card. For those with either little or a checkered credit history, a secured credit card is a tool to prove that you can be trusted with the sort of credit limit a regular card offers. But you actually do have to prove that you can make timely payments on your secured credit card account.

    But if you do that, will the coach – or, in this case, the three major credit bureaus who monitor repayments and hand out the all important credit scores that banks use to determine whether someone is a safe bet to offer a credit card – actually be watching? We checked with the three major credit bureaus, TransUnion, Experian and Equifax, and only Equifax responded to say that payments made on a secured credit card are treated the same way as those made on an unsecured card. But given the relative uniformity of the three bureaus’ policies, it’s likely that Experian and TransUnion also look kindly on responsible use of a secured credit card.

    To improve or build a credit history with a secured card, here are some things you can do:

    • Not all secured cards are equal. Shop around for the best (ie. lowest) fees possible.
    • If possible, try to get a card from an issuer that also offers unsecured cards. With a good payment history, it’s likely they’ll eventually offer you an unsecured card. According to Bankrate.com, it will take diligent users of a secured card about a year before they’re offered an unsecured card.
    • Once you get the card, use it a few times a month and pay the balance in full. In other words, prove that you know how to handle plastic.
    • The secured card is not the finish line. The annual fees and other costs with a secured card mean you are spending your money to spend your own money. Use the card only until a better (unsecured) offer comes along.
    • Don’t expect the same perks with secured cards as unsecured cards. Airline miles and other gifts and offers are not the norm when it comes to secured credit cards.
  • Paying to Get Paid: Employee Costs with Employer Prepaid Card Programs

    Paying to Get Paid: Employee Costs with Employer Prepaid Card Programs

    One of the most common messages you’ll hear about prepaid debit cards these days – including here on this very site – is that they have changed significantly in recent times. In the past, prepaid debit cards were considered suitable only for millions of so-called “unbanked” Americans, those whose credit wasn’t good enough to qualify them for a traditional checking account or credit card. For a variety of reasons, however, the demand for prepaid debit cards has shifted decidedly toward mainstream consumers.

    This has been a good thing both for existing prepaid debit card customers and newcomers because increased demand has prompted large financial players like Wells Fargo, JP Morgan Chase and American Express to jump into the market. Long derided for excessive fees targeted at the most financially vulnerable Americans, prepaid debit cards as a category have certainly improved thanks to increased competition – fees are generally lower and more competitive, and some card issuers even offer consumer protection in the event a card is lost or stolen. Taken together, these developments have spawned some favorable press coverage.

    But by no means is all of the attention glowing. In late June and early July of 2013, thanks largely to a lengthy story in The New York Times, the practice of paying worker wages via a prepaid debit card has come under increased scrutiny. According to the report in the Times – and subsequent coverage in and Businessweek – large employers including Wal-Mart Stores, McDonald’s and Time Warner Cable are eschewing traditional paper paychecks and direct deposit in favor of paying wages on prepaid debit cards. The article in the Times, written by reporters Jessica Silver-Greenberg and Stephanie Clifford, quoted numerous workers, some earning minimum wage, who complained that excessive fees were eating into their already low wages. Additionally, workers interviewed said that they were not given the option to receive either a paper check or direct deposit.

    The reason some large employers have embraced prepaid debit cards as a way to pay workers is simple. It saves them money. Time Magazine, citing a calculation done on Visa’s payroll card , reported that a company with 250 employees getting paid every other week could save $10,600 annually in payroll processing costs by using prepaid cards.

    This spate of attention has already spawned an investigation. In early July New York Attorney General Eric Schneiderman initiated an inquiry into 20 companies that may be routinely using prepaid debit cards to pay their employees; a practice that has to receive written employee consent. Businessweek quoted a letter Schneiderman’s office sent to the companies. “We are concerned about excessive or insufficiently disclosed fees which may unduly reduce employees’ take-home pay.”

Credit and Debit Card Ratings