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Alternative Credit Card Types |
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by: Debbie Dragon
Believe it or not, there are a variety of credit cards and alternatives to the traditional credit card. Understanding the various options in alternative credit card types is essential to selecting an appropriate card for your particular needs.
If everything else is equal, you should always choose an unsecured card over a secured card. Interest rates on secured cards are almost always as high as the interest rates of unsecured cards, it doesn't make sense to choose the secured option over an unsecured credit card. Here are a number of secured credit cards to watch out for:
Credit Cards Secured By Your Purchases – some credit cards are issued through retail stores. Sears card, for example, take collateral in the items you purchase using the Sears credit card. That means if you fall behind making your credit card payments, the lenders might decide to repossess the property you buy with the card. If you try to file bankruptcy, a card secured with collateral may cause problems with your rights under bankruptcy laws.
Credit Cards Secured By Your Home – some companies allow you to get a credit card that is attached to your home equity line of credit. When you use the card to make a purchase, the purchase is secured by your home. Even though these are among the easiest credit cards to get approved for as a homeowner, they are very rarely, if ever, a good idea! The potential consequence of not paying your credit card becomes more than a lawsuit or debt collection effort – you can lose your family's home! You are better off seeking a home equity credit line with a low interest rate than you are using a credit card secured by your home equity loan.
Cashed Checks From Credit Cards – have you ever received a check in the mail from a credit card company? All you have to do is cash or deposit the check. You'll receive the value of the check, but you'll be accepted a high interest rate and stuck with the high balance on the account from day one. It's much better to look at credit card offers and fine one with a reasonable interest rate and then use the card wisely – by making small purchases and paying them off each month.
Credit Cards Secured By Your Bank Account – as far as secured credit cards go, this is likely to be your best option. These cards are secured by a deposit you have at the bank, and your credit limit is equal to that of your deposit. If you can't make your payments, the company will just keep your deposit. These cards are useful in helping people improve their credit if they've experienced a tough financial situation, but if you go this route at least make sure the card does not charge interest on purchases, no annual fee, and that it reports your on time payments to the credit bureaus, otherwise these cards are a waste of time and money.
If you are considering a secured card, at least understand what each of the alternative types of credit cards are and how they work before making your decision.
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Credit Card Articles > Credit Card Education > Alternative Credit Card Types
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