January 07, 2009
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News: Secured and Prepaid Credit Cards.
With the movement toward less risk, alternative forms of credit cards may become more prevalent. One strong candidate is the ‘secured' credit card. Secured credit cards are treated much in the same way as the standard (unsecured) cards except that they carry much less risk. These types of cards appeal to those who either have low credit ratings or are just starting out new and are trying to establish a good credit score.
The way they work, basically, is that an account is opened and a certain amount of cash (collateral) is paid to the lender. Like their cousins, ‘prepaid credit cards', the amount you pay the bank to hold for you is the same amount you can charge on that card. It's a good way to start building a good credit rating. Other than that, they generally play by the same rules as unsecured credit cards. Generally, there are no Annual Membership fees and interest rates are reasonable. They are a very good choice for those who have difficulty getting the good deals with the conventional unsecured credit cards.
We expect to see more and more of these types of credit cards in the coming year. All those people who are in financial straights right now will eventually want to get back into the good graces with the card industry but will have FICO Scores that are greatly lowered. As many as 45 million Americans are expected to fall into this category and most will want to get back in the saddle with lessons learned. Keeping debt low and always paying on time are the two key features to recovery. After a few months, many people will be back into the position of negotiating with the lenders for a better deal toward an unsecured card again.
We expect to see more responsible borrowers in the future because the irresponsible ones will have been weeded out, as the credit card industry itself tries to get back on it's own feet.