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Secured credit cards belong to a category of credit cards designed and developed to provide credit cards to individuals with a poor credit score or none at all. If you are looking for a credit card that can be issued without fulfilling the eligibility criteria of credit score, secured cards are the perfect tool for you.
Now the question arises, how are secured credit cards different from unsecured credit cards and how do they work in real-time? To answer all your queries, we have come up with a new blog, where we will shed light on secured credit cards. Furthermore, we will share some of the best tips from financial experts on how to use secured credit cards. But before, we dive deep into the nuances of secured credit cards let us first understand what are secured cards?
Unlike conventional credit cards, secured cards use a security deposit placed by the applicant as collateral as there is no background check of credit-worthiness by the provider. By depositing the security amount, the credit card provider gets the confidence that the borrower will repay the amount because of the fact that if they miss out on the repayment their security deposit will not be refunded by the provider.
In most of the cases, the line up of credit and the limit issued by the financial institution is dependent on the monthly income and the security deposit of the applicant. To understand this let us consider an exemplary situation if your security deposit is equal to AED 5000 then your credit limit approved by the financial institution will be equal to the deposit i.e. AED 5000.
Very often credit card users get confused between secured credit and it is crucial to understand that both the tools are quite different from each other. In the case of secured credit cards, your deposit is considered as collateral and has nothing to do with the bill payments.
The way secured credit cards work is quite similar to the way unsecured credit cards work. To keep it simple with a secured credit card you can purchase or make transactions everywhere credit cards/debit cards accepted. For example, you can use your card at the super-market, for online transactions, for booking flights-hotels, etc.
One of the features that make secured credit cards different from conventional credit cards is that they help the user to rebuild or improve their credit score and credit rating. Making timely repayments of your outstanding financial obligations is crucial regardless of the fact that you use secured or unsecured credit cards. Regular and timely payments will ensure that your credit-worthiness is reflected in your credit history.
The majority of secured credit cards are reviewed periodically to shift them into the category of unsecured credit cards. Once the provider reviews your card and finds it suitable to be shifted to the category of unsecured card your deposit will be refunded and your card will be changed to an unsecured credit card. Responsible use of secured credit cards that includes timely-repayments gives the provider an impression of credit-worthiness which is a major factor in transitioning your secured card to an unsecured credit card.
As mentioned earlier secured credit cards are issued for applicants with a poor credit history or none at all. Secured credit cards can be used as an effective tool to rebuild or improve your credit score extensively. Here’s a quick rundown on some of the tested ways to effectually use your secured credit cards:
In a Nutshell
Secured credit cards are an excellent option for applicants who either have a poor credit score or none at all. You can make use of these cards and later build your credit score based on which you can get an unsecured credit card in the UAE.