The choice between a balance transfer and secured credit card depends on many factors, including the applicant’s credit history, income level, and others. Generally, issuers offer secured cards to clients with poor or fair credit.
Balance transfer cards are designed for borrowers who wish to transfer high interest rate balances. Financial institutions offer competitive interest rates to attract new customers. This option is beneficial for borrowers with multiple accounts and busy work schedules. The main benefits of balance transfer cards are that they help save money, and it is easier for borrowers to repay their debt. If you have a card with a short grace period, high fees and interest rate, and low limit, you may want to switch lenders. In any case, timely payments help improve your credit score. It is important to check the terms and conditions, however, because you may end up with a high interest rate after the promotional period is over. Many issuers offer lower interest rates for purchases than for balance transfers. Another problem is that not everyone qualifies for a low interest rate. Competitive rates are usually offered to customers with a very good or excellent credit score. Those with fair or good credit are offered the regular rate. Check whether the issuer charges a balance transfer fee or annual fee. There are other options for borrowers with tarnished credit, and one is to apply for a secured card.
Secured cards require a deposit which is usually equal to the limit offered. Issuers require a deposit to guarantee timely payments. The deposit amount varies from one bank to another and ranges from few hundred dollars to $3,000 or higher. There are many advantages depending on the issuer, and one is that financial institutions usually report to the credit bureaus. Thus timely payments help borrowers to re-establish or build credit.
You can open an interest-bearing savings account and place the deposit there to earn interest. The main downsides are the higher interest rate and the fact that applicants often pay annual fees and processing and application fees. The higher risk of default explains why many issuers offer higher interest rates to borrowers with poor credit. Whether you are a resident or a recent immigrant and regardless of your score, it is important to pay the balance in full or you will end up paying a lot of money in interest. As a rule, this is an option for borrowers who can’t get approved for a standard card.
There are other solutions depending on your income level and credit score – cash back, airmiles, no annual fee, and other types of cards. In fact, some balance transfer cards come with beneficial features such as cash back or bonus points. If you have tarnished credit, other options to consider include department store and prepaid credit cards. The main drawback is the high interest rate while payments are not reported to the credit bureaus. Diners Club and American Express also offer charge cards while MasterCard and Visa issue debit and credit cards. With charge cards, customers are required to pay the balance in full.
Related Resources:
Comments on this entry are closed.