If you are thinking of getting a secured credit card, then this question “What is the credit limit on a secured credit card”? becomes a necessary question you have to consider.
What is a Secured Credit Card?
A secured credit card is designed for credit newbies or people with less than stellar credit. It is a good card to use in rebuilding credit.
These cards can be used just like a traditional credit card (unsecured) credit card to help you establish good credit, for as long as you keep up with responsible credit behavior.
How a Secured Credit Card Works
Since you have to deposit an amount that stands as collateral for purchases you make using the card, if you default on payments, the card issuer will keep your deposit. But if your account is kept in good standing, your credit card issuer will return your deposit to you after a certain number of months or when you close your account.
Even if you make a security deposit for a credit limit, you can use the secured credit card just like you would any other credit card. You can swipe it for purchases up to your credit limit and make timely payments towards your balance each month.
Note: The credit limit on your card is typically equal to your security deposit. Though in some cases, your credit limit can be bigger than your security deposit, based on your card choice and also your credit rating.
What is the Credit Limit on a Secured Credit Card?
A Secured card is almost like an unsecured credit card because you get a credit limit, can incur interest charges, and can even earn rewards.
The basic difference is that you are required to make a deposit (known as a security deposit) so as to receive a line of credit. For a secured credit card, the amount you deposit usually becomes your credit limit.
Deposits normally start at $200 and can get upwards of $2,500. When you make a $200 security deposit, you will get a $200 credit limit and if you want a bigger credit limit, you will need to deposit more money.
Note also that the amount you deposit acts as collateral in case of any payment defaults. This amount is completely refundable in one of two ways; Pay off your balance in full and close your account, or upgrade to an unsecured card.
These cards come with many benefits just like a traditional credit card, even though they are typically easier to qualify for if your credit history is poor or non-existent.
Another big difference, in addition to the much-needed security deposit, is the interest rate. Secured cards are known to offer all users one variable interest rate, like 13.99% – 24.99%. Although in most cases, the better your credit score the lower APR you’ll get. Since secured cards often only have one, relatively high APR, it is most important that you always pay on time and also in full to avoid interest charges.
How Secured Credit Cards can Improve your Credit
With responsible use of a card (i.e.) making payments on time and in full, this information will be sent to the three main credit bureaus. These credit bureaus are Experian, Equifax, and TransUnion, which helps to boost your credit score and get you prepared for qualifying for an unsecured credit card.
Since your payment history is one of the major determining factors of your credit score, you must ensure that you always make your payments on time. When you consistently make on-time payments with your secured credit card, your financial institution will report positive information to the credit bureaus, which will help you build credit.
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