Secured Credit Card is secured by savings bank account wherein the credit card company is entitled to deduct the outstanding debt of a credit card holder from his savings bank in case of non payment. The card is secured by the borrower at the time of opening the secured credit card account.
In case of secured credit cards, first of all, a consumer is required to deposit an amount into a bank account which is different from any existing account of the customer. Generally the limit of a card is determined by the amount of money deposited in the account. This deposited amount of money in a separate account acts as a form of collateral for the debt which can be utilized by the card issuing company to adjust accumulated debt in case of regular non-payment of outstanding amount.
The non-payment of one or two outstanding debt would not allow the credit card issuer to credit it directly from the special account. The creditor could recover the same from the deposited amount in two cases :-
i. Account is closed in response to the request of the credit card holder.
ii. Closing of the account in response to regular non-payment of the outstanding debt for 5 to 6 months. In such a case the total outstanding amount is much higher than the original debt because of the regular accrual of interest rates and other default charges in addition to the original one.
Credit card issuing companies prefer to issue this type of card because it has been observed that the repayment rate is better in secured credit cards than the unsecured ones. This is evident from the typical human psychology where the debtor perceives to lose something in case of non-payment of outstanding debts.
One of the most important advantages of possessing a secured credit card is that he could build up positive credit history through it. Credit card companies offering secured credit cards report about the credit positions to the major credit bureaus at a regular interval. This gives an opportunity to the secured credit card holder with nil or even negative credit history to build up a positive one. Credit card issuing companies offer this card to rebuild the credit of a person.
Secured Credit Card comes in two brand names :-
a) Master Card
b) Visa Card
The secured ones are generally charged with a higher fees and service charges than the non-secured cards except for some special cases such as a customer having a outstanding non-payment history for a long time. But if the total cost associated with a card is considered then it could be seen that the secured credit cards cost less than the conventional non-secured ones.
Hence it can be deciphered that secured credit cards are advantageous and could be considered by any person for rebuilding a positive credit history.
You may visit creditcards.com, credit.com and bankrate.com for more informations and knowledge on Secured Credit Card.