Most consumers will at some point in their life use credit cards that are unsecured. This type of credit card is important for building credit and increasing one’s credit rank. It also increases the amount of buying power that a consumer has.
Consumers should thoroughly understand what this type of card is and how it works before they apply for such a card. Fortunately, the process of acquiring and using such credit cards is quite simple.
What an Unsecured Credit Card Is
This type of card is distinct from what’s known as a secured card because it doesn’t involve collateral. A secured card is a type of card that requires a cash deposit or some type of collateral. If a card is not secured, the lender is not relying on collateral but relying instead on the consumer’s word and credit history alone to ensure that debts that build up with the card will be paid off on time.
This is a type of card that benefits the consumer in that it simply adds to the amount of funds available for making purchases. Consumers do not have to put any funds onto the card. Unlike a debit card, the consumer’s own money is not immediately deducted from the credit card account. Rather, the lender initially pays for the purchase and is later reimbursed for the purchases that are made plus interest.
How an unsecured credit card works
The typical process for a consumer who is trying to get a card like this is that they’ll fill out an application. The application will provide important details about the applicant’s identity and income. The lender will analyze the credit score of the applicant in determining whether or not he or she should be approved for the line of credit.
With secured cards, credit is not such an important concern because there is collateral on the debt. However, when a card is not secured, the credit rank of the applicant becomes a much more important matter. If a consumer has bad credit, they may not get approved when applying for a card that’s not secured. Consumers with bad credit often need to take some time out to improve their credit before they are eligible for a card that’s not secured.
How an unsecured credit card is used
When an applicant is approved for a card, the applicant will get a certain limit on the card in question. This is an amount over which the lender will no longer continue to fund purchases until the card balance is paid down. With this type of credit card, the consumer can make whatever purchases he or she wants. Those who hold this type of card can maintain their credit line without having to use funds for anything in particular. This makes things very flexible for the consumer.
Consumers using these cards will receive statements from the credit provider on a monthly basis. Statements will show how much of a balance the consumer is carrying. Statements will also indicate what minimum payment is necessary. If the minimum payment is not made by the due date, the consumer holding the card may have to pay a fee. This is not good for the consumer’s credit score. Consumers are expected to at least make the minimum payment. If they do not pay off the balance in full and run a balance, they will also be charged interest on the debt.
The major benefits of using these cards
While a card that’s secured might offer some benefits, these cards are quite attractive and advantageous to consumers. These cards are a necessity for any consumer who is looking to acquire higher credit. They allow consumers to improve credit by keeping up on all payments. This, in turn, allows the consumer to appear better and more reliable in the eyes of credit card companies. As long as cardholders maintain their payment schedule, they will achieve higher credit over time.
These credit cards are also beneficial in that they make it so that cardholders have more funds available for purchases. Even if a consumer has no cash to their name, they can make purchases on credit. Many consumers like to have a credit card available to provide funds and make purchases in case of emergencies.