In the current economic climate, many people are moving away from using credit cards. There are however some times when you need to have a credit card in order to secure a reservation. Many hotels and most car rental companies require that you have a credit card. If you are like most people, you are getting lots of credit card offers in your mailbox every week. If you have no credit history or have less than perfect credit, you are probably getting two kinds of offers. Some are for secured credit cards and others are for unsecured credit cards. What exactly does this mean?
Unsecured credit card
An unsecured credit card is offered by the credit card company to people who have a proven record of paying their bills on time. They require that you have a good solid credit score. Your credit score is a record that is maintained about you and your payment history. If you are someone who pays their balance off in full every month, you will most likely have a stellar credit record. The credit card company will be much more likely to offer you an unsecured credit card. With an unsecured credit card, your good history is all that is required for you to apply and receive this card.
You may be offered a 0% interest rate or other enticements in order to get you to sign up for this card. The credit card company has determined that you are not a risky credit user and they are pretty confident that your past history is an indication of what your payment history will be going forward. Of course, things happen and most people who have bad credit, had good credit at some point. If you are getting an unsecured credit card, you are considered to be low risk. If the interest rate offered is high on your credit card, you are most likely considered to be riskier than someone with a very low rate.
Secured credit card
A secure credit card requires that you have money in an account with the bank up to the amount of credit that the bank will advance you. In other words, if you have a $500 limit on your credit card, you are required to maintain a balance in a savings or checking account in the amount of $500. The good news is that if you pay your bills on time and don’t go over your allowed limit, you will likely be rewarded with an increase in your credit limit, often without having to place additional collateral in the bank. A secured credit card is a good way to establish credit when you are starting out and also it can help you to repair bad credit. It is often the only way to get credit after a bankruptcy.
Good credit is important. If you want to buy a home or even to buy insurance, your credit score can determine whether you are eligible and the rate you will pay. When you need to establish or repair your credit, a secured credit card is the way to go. With an unsecured card, you have many more options and you can negotiate your rate and charges with a variety of institutions.