Credit cards are perhaps one of the most misunderstood types of credit, even though they are far and away the most common type of credit account. On one hand, they are an excellent way to build your credit score. If used poorly, however, they can wreak havoc when you try to apply for a loan. If you’re having difficulty getting approved for a loan, credit repair companies in Pennsylvania may be able to help.
Secured Versus Unsecured Credit Cards
When you first apply for an unsecured credit card, the company won’t ask for any money, beyond perhaps an application fee. The credit card company or bank will then decide whether or not to approve the card. Once a card has been approved, they will set a credit limit for your account, and you can charge as much as you’d like on the card so long as your total balance does not exceed your credit limit.
Each month, you’ll be required to make a minimum payment that increases as the overall amount you owe rises. The more you owe, the bigger the monthly minimum. If you fall behind on your payments and are completely unable to pay, the bank has the option of filing a lawsuit to collect. This means that the credit card company can garnish your wages.
Secured credit cards work in exactly the same way, with one difference–you’re required to give the bank as much money as your credit limit. This money is kept in a secure account that you cannot touch. For example, if you have a credit limit of $1,000, the bank will ask you to deposit $1,000 into the secure account before approving your card.
Monthly payments are required, just as with unsecured credit cards, and the payments do not come from the secure account. You make the payment yourself, and as long as you make your payments on time, the secured account will remain untouched. However, if you miss a payment, the bank will deduct the amount due from the secured account.
Over time, if payments are made in a timely manner, the card issuer may decide they have enough faith in you to convert the account from secured to unsecured and refund the deposit in full.
Why Would Someone Want a Secured Card?
For those with poor credit scores or no credit score at all, a secured card is often their only option. When the account is opened, the bank will begin reporting the status of the account to America’s three credit reporting bureaus: Experian, Equifax, and TransUnion.
With each successful monthly payment, your credit score will rise. This allows you to gain greater access to loans and will lower the interest rates you pay on them. As you can see, credit can affect your life in major ways.
Obtaining an Unsecured Card
The first step is to obtain a copy of your credit report and look for any inaccuracies. All that’s needed is for someone at a bank to mistype a social security number, and suddenly someone else’s unpaid loan is listed on your credit report.
Getting these inaccuracies removed is a tall order. Thankfully, reliable credit repair companies like The Phenix Group can help to dispute and eliminate inaccuracies. With our deep financial and legal knowledge, we can also guide you on the best practices to keep your credit score rising for a long time to come!