Bank Secured Credit Card - Building Your Credit

Whether you have no credit history, or bad credit history, it can be possible to build your credit profile by applying for a bank secured credit card. A good credit history goes a long way and can help with anything from applying for a mortgage or car financing to simple things such as cell phone contracts. Similarly, new immigrants, who have just settled in the country, can find it difficult to get started with credit history with typical credit cards because of their lack of credit history.  Secured credit cards offer a way to get back on track with credit,or get off to a great start  building credit history.

Step 1: Understand How it Works

Amalgamated bank secured cards work the same way normal credit cards work. You have a limit and make monthly payments to pay off debt on a monthly basis.  However, bank secured cards require a security installment as collateral.  The security collateral, or money, is held by the bank.  The spending limit of the card is the secured amount.  Think of it as a revolving pre-paid spending card that has the exact same look and functionality as a regular credit card.  It is impossible to determine whether the credit card is a secured or an unsecured card at face value. In fact, in most cases, once you have a good credit standing, the bank allows you to retain the same credit card and number even after you get your security deposit refunded.

Step 2: Arrange the Amount of the Security Deposit

The amount of security required as a deposit depends on the card holder since the spending limit determines the amount of security required. Most banks that offer secured credit cards allow a deposit/spending limit ranging from as low as $300 to as high as $10,000.

In most cases, the amount that is pledged as a security with the bank in exchange for the spending limit on your secured credit card is invested by the bank into secure instruments and earns nominal interest.  In almost all cases, security deposits are kept in instruments that are FDIC insured for up to $100,000 in case the financial institution becomes insolvent, and hence there is no need to worry about loosing the security deposit.

Step 3: Release of the Security Deposit

As you build your credit, or improve your bad credit, the bank constantly tracks your credit history progress. In the case of building new credit, banks can release the security deposit in as little as 12 months.  In cases where individuals are rebuilding bad credit, the release of this deposit may take more time.

The bank will only forfeit your security deposit in the form of applying it towards unpaid balances that are past due on your credit card account.  Typically, you will receive notification from the bank before it carries out such action.

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