The Benefits of a Limited Credit Card

If you have a bad credit score you can fix it over time with a limited credit card. You have to be patient because it’s not going to happen overnight, but if you get the right kind of card and make your payments on time, every month, your score will increase so that you qualify for other loans. Not all secured credit cards are equal, so make sure you perform a little research before applying for any card.


A limited credit card is easier to get than an unsecured card. Although if you prove you’re responsible, you’ll be eligible for an unsecured card in about a year. There are guidelines that go with both with cards. For example, if you’reLimited Credit Card late making a payment, some cards will charge you a $35 late fee and they’ll charge you interest on the balance. Also, not all cards have the same benefits. Some companies will report your payment activity to TransUnion, Experian and Equifax and some won’t.


If you want to improve your credit score, make sure the company will send your payment report to the credit bureaus, otherwise you’ll be wasting your time. Most companies will disclose their policy on the corporate website.


Understanding Limited Credit Cards


A limited credit is different than a traditional credit card because you have to make a cash deposit to secure the account. Your spending limit will be based on your deposit amount so the more you pay upfront, the more spending power you’ll have.


It’s your money, but you’ll have to pay interest on the balance just like a regular credit card, and if you’re not careful, you could end up owing more than the initial deposit so make sure to make all the payments on time. Also, some companies will limit the amount you can deposit to $300 or $400 in order to make sure you don’t get in over your head.


There are a number of things you should look for before you sign up for a limited credit card. The most important is to make sure the company will report your payment history. Look at the annual percentage rate. Since secured card providers take a risk extending credit to consumers like you, they tend to charge an outrageous APR. Once you fix your credit score, you can stop using that card, but you’ll have to use it to develop a good payment history. The only way around that is to find a company that offers the lowest annual percentage rate possible.


You should also be aware of the fees and penalties on limited credit cards. One of the most common fees is called a monthly account maintenance fee. It is a fee you’ll have to pay on top of everything else so make sure you know how much a company will charge you before you open an account. Limited cards also have very stiff penalties for late payments or if you go over your limit.


Some companies will allow you to go over the limit so they can charge the extra fee, so be careful not to over extend yourself. All the fees and penalties should be clearly written in the fine print and on the credit agreement so be sure to read it thoroughly and carefully.


While many limited credit card companies will require an initial deposit of $300 to $400, some may require more. Look for a card that has a deposit requirement that’s reasonable because it’s something that you have to pay in one lump sum. The good thing is that as soon as they receive your payment and issue a card, you have access to the money.


You use a limited credit card the same way you use a regular credit card. In fact, no one has to know you’re using a secured card. Be careful not to exceed your limit and make sure you have the financial ability to make a payment every month. If you get laid off from your job, it may not be a good time to use your card.


Even though money was deposited into the account beforehand, you still have an obligation to pay back what you have charged on the card. That’s why you got the card the card in the first place, to prove you are responsible enough to make payments every month. You should also try to pay at least the minimum amount if you can’t pay it in full for any particular month. Remember, that every time you make a payment, it’ll be recorded on your credit report.


You’ll also want to keep all the payment receipts. Set up an envelope or a file at home so you can insert all the payments you’ve made. Include a copy of the bill and a copy of the check or money order you send in because if you have to prove you made payment, it’ll come in handy.


Click here now to learn how to get a limited credit card today. You’ll learn more about the process and how to improve your credit score.

Category: Limited Credit Card

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