Post-recession, many variants of credit cards have started appearing in the market. These cards are generated to serve consumers according to the need of the time. The recession has left many people bankrupt, victims of foreclosures and deep debts, and also blemished credit reports. Hence, different financial services are being generated in financial markets, so that people can reap their benefits and improve their credit and financial conditions. Credit cards which do not require any deposit and help users to save a considerable amount of money are called unsecured credit cards.
Meaning of Unsecured Card, No Deposit and Bad Credit
The name, unsecured credit cards, shouts out the meaning and definition of the term. This credit card is an unsecured credit card debt, meaning, that in order to get the card, no collateral or other financial security has to be pledged.
- In case of credit cards, the collateral is a deposit of money, a sum which is pledged and paid to the credit card company. In circumstances where the bill of the credit card company goes unpaid, the security deposit is used to recover the losses of the company. A credit card which does not have such a deposit is by default an unsecured credit card, unless any contrary term or condition is imposed.
- The ‘No Deposit’ implies that one does not have to pay any kind of deposit to the company. It means that you not only save money but also get the card instantly without paying anything during the application and approval process.
- Last but not the least, the card is also given to people who have a ‘bad’ credit rating. It means that, even though one has a FICO score below 580, the card would be approved.
The last defining feature is that the credit card company also does not demand a security, which makes the deal even more risky, from the company’s point of view, which brings us to the terms and conditions of this card.
Terms and Conditions
As mentioned above, these cards are convenient for all consumers. However, every convenience comes at a price. In this case there are a few characteristics of these cards that every consumer should know about.
- For starters, let me state that these cards are rather difficult to come by, due to the fact that being high risk products they are given to people who have a high paying and assured job, in fact it is rather rare to find such a credit card offer. Apart from that, people who agree to wage garnishment are also preferred for approval.
- The interest rate and APR on such credit cards is bound to be high and quite towering with many service providers charging up to 28% to 30% per billing cycle. Apart from such higher APR, late fees and annual membership fees are also levied.
- Every late payment will be reported to the credit reporting agencies and will be fined. The credit limit of such cards is also always low and transactions above the limit are declined.
It must be noted that these cards and their processing cycles are very difficult to manage, owing to the fact that every billing cycle must be paid off as soon as the bill comes in. Apart from the payment of bills, late or default payments result in the rise of interest rates. Though the company gives a card to people who have a bad credit rating, facts such as current account and identity, residence and wages are confirmed, and in some cases also monitored through reliable and lawfully legitimate sources.
Other Variants of Security Deposit
There are a few other variants of such a no deposit scheme. Here are a few examples.
- There are some credit cards which decide or increase your credit limit as per the amount deposit you pay. For example, for $100 you will get an additional $1000 on your credit card (just an example).
- There are some companies which refund the deposit either after a while or after the user’s credit ratings have improved.
- Pledging an asset makes the card, a secured one, however in circumstances where the credit history is not particularly good, but if the person is employed, he may choose wage garnishment, where his credit card bill would be deducted at source.
Before you apply for this card, make sure that you have calculated a debt to income ratio and calculated your expenses properly. Make sure that your expenditures fit into your monthly quota.