Secured credit cards are often misunderstood and surrounded by myths and misconceptions. These types of credit cards are designed for individuals with poor or no credit history and require a security deposit to be approved. However, there are many misconceptions about secured credit cards that may prevent people from considering them as a viable option for building credit. In this article, we will debunk some of the most common myths and misconceptions about secured credit cards.
- Myth #1: Secured Credit Cards Are Only for People with Bad Credit
- Myth #2: Secured Credit Cards Have High Interest Rates
- Myth #3: Secured Credit Cards Have Hidden Fees
- Myth #4: Secured Credit Cards Don't Help Build Credit
- Myth #5: Secured Credit Cards Are the Same as Prepaid Cards
- Myth #6: Secured Credit Cards Are Difficult to Get Approved For
- Myth #7: Secured Credit Cards Are Only for Personal Use
- Myth #8: Secured Credit Cards Are Not Accepted Everywhere
- Myth #9: Secured Credit Cards Are Only for Young People
- Myth #10: Secured Credit Cards Are a Last Resort
- Conclusion
Myth #1: Secured Credit Cards Are Only for People with Bad Credit
One of the biggest myths about secured credit cards is that they are only for people with bad credit. While it is true that secured credit cards are a great option for individuals with poor or no credit history, they can also be beneficial for those with good credit.
Secured credit cards can be used to rebuild credit or establish credit for the first time. They can also be used as a tool to improve credit scores by showing responsible credit behavior. Additionally, secured credit cards can be a good option for individuals who have recently gone through bankruptcy or have a high debt-to-income ratio.
Myth #2: Secured Credit Cards Have High Interest Rates
Another common misconception about secured credit cards is that they have high-interest rates. While it is true that secured credit cards may have higher interest rates than traditional credit cards, they are not significantly higher. In fact, many secured credit cards have interest rates that are comparable to unsecured credit cards.
It is important to note that interest rates for secured credit cards can vary depending on the issuer and the individual’s credit history. It is always a good idea to compare interest rates and fees before choosing a secured credit card.
Myth #3: Secured Credit Cards Have Hidden Fees
Some people believe that secured credit cards have hidden fees that make them more expensive than traditional credit cards. However, this is not necessarily true. While some secured credit cards may have annual fees or application fees, these fees are often disclosed upfront and can be avoided by choosing a different card.
It is important to carefully read the terms and conditions of any credit card before applying to understand any potential fees. Additionally, many secured credit cards have no annual fees and may even offer rewards programs.
Myth #4: Secured Credit Cards Don’t Help Build Credit
One of the biggest misconceptions about secured credit cards is that they do not help build credit. Some people believe that because a security deposit is required, the card does not function like a traditional credit card and, therefore, does not contribute to credit history.
However, this is not true. Secured credit cards report to the major credit bureaus just like traditional credit cards, which means that responsible use of a secured credit card can help build credit. Making on-time payments and keeping credit utilization low can positively impact credit scores.
Myth #5: Secured Credit Cards Are the Same as Prepaid Cards
Another common myth about secured credit cards is that they are the same as prepaid cards. While both types of cards require a deposit, they function very differently.
Prepaid cards are loaded with a specific amount of money and can only be used until the balance is depleted. Secured credit cards, on the other hand, have a credit limit that can be used and paid off over time. Additionally, prepaid cards do not report to credit bureaus, so they do not help build credit.
Myth #6: Secured Credit Cards Are Difficult to Get Approved For
Some people believe that secured credit cards are difficult to get approved for, but this is not necessarily true. While secured credit cards may have more lenient approval requirements than traditional credit cards, they still require applicants to meet certain criteria.
Most secured credit cards require a minimum security deposit, which can range from $200 to $500. As long as the applicant can provide the deposit and meets other basic requirements, they can typically be approved for a secured credit card.
Read this guide on secured credit cards if you are eager about troubleshooting common secured card issues.
Myth #7: Secured Credit Cards Are Only for Personal Use
Many people believe that secured credit cards are only for personal use, but this is not the case. Secured credit cards can also be used for business purposes, and there are even specific secured business credit cards available.
Business-secured credit cards work similarly to personal-secured credit cards, but they are designed for business owners who may not have established credit yet. These cards can be a great tool for building business credit and keeping business expenses separate from personal expenses.
Myth #8: Secured Credit Cards Are Not Accepted Everywhere
Some people believe that secured credit cards are not accepted everywhere, but this is not true. Secured credit cards function just like traditional credit cards and can be used anywhere that accepts credit cards.
It is important to note that some secured credit cards may have restrictions on where they can be used, such as only being accepted in the United States. However, this is not a common issue and can usually be avoided by choosing a secured credit card from a reputable issuer.
Myth #9: Secured Credit Cards Are Only for Young People
Another common misconception about secured credit cards is that they are only for young people who are just starting to build credit. While secured credit cards can be a great option for young people, they are not limited to this demographic.
Secured credit cards can be beneficial for individuals of any age who are looking to establish or rebuild credit. They can also be a good option for those who have had credit issues in the past and are looking to improve their credit scores.
But remember if you are a student, you can choose student credit card for build credit!
Myth #10: Secured Credit Cards Are a Last Resort
Some people believe that secured credit cards should only be used as a last resort, but this is not necessarily true. While secured credit cards may not be the first choice for someone with good credit, they can be a great option for those with poor or no credit history.
Additionally, secured credit cards can be a useful tool for anyone looking to improve their credit scores or establish credit for the first time. They can also be a good option for those who have recently gone through bankruptcy or have a high debt-to-income ratio.
Conclusion
Secured credit cards are often misunderstood and surrounded by myths and misconceptions. However, these types of credit cards can be a valuable tool for building credit and improving credit scores. By understanding the truth behind these common myths, individuals can make informed decisions about whether a secured credit card is the right choice for them.
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