Credit Limits and Security Deposits for Secured Cards
Secured credit cards are a popular option for individuals who are looking to build or rebuild their credit history. They work by requiring a security deposit that serves as collateral for the credit limit on the card. In this article, we will discuss how credit limits and security deposits work for secured cards.
When you apply for a secured card, you will be required to provide a cash deposit which typically ranges from $200 to $2,000 depending on the issuer and your creditworthiness. This deposit acts as collateral against any potential default on your part. The amount of your security deposit generally determines your initial credit limit.
The minimum and maximum security deposits vary among different issuers, so it’s important to compare offers before making a decision. Keep in mind that some issuers may offer higher credit limits than others based on factors such as income verification or larger security deposits.
Your credit limit is usually equal to or slightly less than the amount of your security deposit. For example, if you make a $500 deposit, your initial credit limit might be set at $500 or slightly lower due to fees associated with the card.
It’s worth noting that not all secured cards have fixed limits forever. Some issuers review account activity periodically and may increase your limit without requiring an additional deposit if they see responsible usage and timely payments over time.
Security deposits are held in an interest-bearing account by most reputable issuers while you use the secured card responsibly. In some cases, after several months of responsible use, some issuers may even upgrade your secured card to an unsecured one where they return the original deposit but allow you to keep using the same account with increased spending power.
In conclusion, when applying for a secured card, carefully consider both the required security deposit and potential credit limit offered by various issuers. Remember that responsible usage can lead to increases in your available credit over time while also helping you build or rebuild your credit history.