Liz Roberts asked:

Typically, secured credit cards are issued when the holder is able to offer a type of security deposit to the lender by depositing a pre-arranged amount of money into a savings account, money market or certificate of deposit. This is how it works: Usually, for a small fee, the lender will allow the cardholder to utilize the credit card within the specified parameters. Unlike using the cash for any purchases, the secured card creates a credit history for the holder, thus contributing to their overall credit rating.

With a secured credit card, it is imperative that you make full payments each and every month; otherwise interest is charged on the outstanding balance. If you default, the lender will use the amount in the security account to pay off the debt and this can result in more damage to your credit rating.

Don’t Fall Prey To Credit Card Scams

As with any other financial undertaking, it is important that you read the fine print so you are totally aware of exactly what you are paying for. There are some pretty unscrupulous predators out there whose primary goal is separating you, the consumer, from your money. For this reason, you should pay particular attention to the fee schedule prior to accepting any offers for credit cards. Of course, no-fee credit cards are best, but most often the lender will require a small one-time activation fee, which can typically range from $25 to $60.

The user must be vigilant when obtaining credit, so it is your responsibility to make sure there are no hidden fees. Special care must be taken when the contract contains clauses outlining registration charges and/or set-up fees. In some cases, the cost of the card can quickly exceed your credit limit, thus only adding to your credit woes.

Do Your Research On Secured Credit Cards Before You Apply

With a secured credit card, you may have to pay a higher than average interest rate, however, this does not mean that the interest charge is outlandish. Many secured cards offer competitive rates under 19% and again, this is where diligent research on the part of the user becomes paramount. You should be cognizant of all grace periods, the penalty for late payments and the fees charged should full payment not be made within the proscribed time frame.

Once you show due diligence over the specified time frame (most lenders like to see a history of six months to one year of responsible credit card use), the creditor may offer to double the amount of credit available to you, with a portion of this fixed amount being unsecured. Should you choose to close out the account, however, the unsecured funds must be returned to the lender.

The cardholder should ensure that the creditor regularly informs credit-reporting agencies of their payment history. Once it can be established that you are using credit reliably and sensibly, your credit score will increase and you will then be eligible to apply for an unsecured credit card.

Devin Hansen asked:

We have all done this without realizing the financial repercussions of our actions. But, unless you know how using your credit cards cash advance option can cripple your credit, you may be making the same mistakes over and over.

Its so easy to do. You and your friends are going out on the town and you didnt make it to the bank before it closed. But you need cash! So, you head to the nearest ATM and set in motion events that you may be dealing with for a long time.

But heres the rub. From the moment that the ATM spits out your cash, the interest on that withdrawal begins to accrue and before you know it, the initial $100 has ballooned into a much larger sum.

Why Credit Card Companies Love Cash Advances

These outfits are in business for the same reason that other companies are in business: to make money. Credit card companies love cash advances because they are much richer streams of revenue for them.

Right off the bat, unless your withdrawal comes from an ATM owned by your bank, you get dinged by a processing fee, (or some similar usurious euphemism) and that fee gets slapped onto the amount that was withdrawn. Then, in most cases, there is no grace period on cash advances, which means that interest on your withdrawal begins ticking immediately, which of course also adds to the tab.

Heres the real kicker. Most often, cash advances are charged at a much higher rate of interest than your regular interest rate, which further adds to the balance. An average credit card interest rate is around 18%, but the rates on cash advances generally begin at 25%, and can be 30% or higher!

But wait, theres more! Because of the way that credit card companies typically structure the terms of payment, if you have a balance in addition to the cash advance charges, any payments made will be applied to the other charges before a penny is paid against your cash advance. This means that they are using every opportunity that you give them to make as much money as possible from your decisions.

The awful truth of it is that we willfully do this to ourselves every time we hit an ATM for quick cash. The credit card companies cannot be viewed as villains, because all of these conditions are in the agreement that we sign when we get the card. All of these fees may be difficult to find in the fine print, but this information is required by law to be there. We just never think about how much it costs us until the statement comes.

But How Does This Cripple my Credit?

Cash advances can cripple your credit only if you cannot pay the balance in full the following month, and/or you are late with a payment.

If you make the mistake of being late, then things get really ugly. The following events are then set in motion:

Interest Rate Hikes
The moment that your payment is late, the rates at which your cash advance and other balances are charged gets boosted considerably. Five percentage points may not seem like a big deal initially, but if your balance is $1000 or above, it can become a much bigger problem to pay off your debt.

Additional Fees
Being late also opens the door for all sorts of additional charges to be made against your account. These fees get added to your balance, and then interest can be applied to that as well.

Huge Impact on Your Credit Rating
On average, 35% of your credit rating is based on timely payment of borrowed money. This figure alone is the single biggest part of your credit score, and if you are late with a payment, it will take a disproportionately long time to overcome that one mistake.

There is nothing wrong with using the cash advance option on your credit card if you are in a tight spot and need cash right now. Just make sure that you will be able to pay off the full amount when your next bill comes, so that you can avoid all of the pitfalls that can follow.

Kathy Burns-millyard asked:

You may or may not have a credit card… but if you’re a college student, you’re likely getting offers on a near daily basis. They show up in your mailbox and in your email, with you – the College Student – as the focus. On a tight student budget, they probably seem very appealing. It would be nice to buy that pair of jeans you can’t afford or to be able to hang out with your friends at the coffee shop between classes; however, credit card abuse is a very real danger for college students. Before you decide to get one, or charge more on the card you already have, it’s important to learn the dos and the don’ts.
Do – Find the card with the lowest interest rate you can qualify for. Your interest rate will determine the overall cost of your loan; and yes, it is a loan. Credit cards are not free money.
Do – Make sure you read the “fine print.” Be sure you’re getting what you think you’re getting. Are there annual fees, membership fees, and/or sign up fees? Many a student has been surprised to receive their first credit card statement, before they’ve even charged a cent; to see a balance of $100, $200 or more.
Do – Strive to have no more than one credit card. The more credit cards you have equal the more debt you’ll have when you graduate. Keep it to one and one card only.
Do – Make more than the minimum payments; even if only fractionally more. Optimally, pay the new balance off each month.
And now the don’ts
Don’t – Be late on a payment. If you have a late payment, even once, your creditor can – and likely will – raise your interest rate.
Don’t – Forget that incidentals add up big. A cup of coffee here, a pizza there, a few munchies for studying are all small potatoes by themselves, but when you do this throughout the month it will show in a larger balance than you expected. The best rule of thumb? Don’t buy what you can’t afford. If you have to charge something you can’t pay off when the statement comes; make it something necessary.
Don’t – Stop shopping around. You will continue to get new credit card offers and if you find a better interest rate; transfer any existing balance and close the original account.
Don’t – Count on mom and dad to bail you out. You’re an adult now and these are your finances, so be responsible. A nice side effect? You’ll feel good about yourself and they’ll respect you for making sound decisions.
You’re in college to learn and, ideally, that should include managing your income vs. your debt. When you graduate with little to no credit card debt, you’ll be glad you took the time to be smart with your money.

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