Don Miguel Angel Ruiz, the famous author said that children are born innocent. Before they are domesticated, they live a life free of fear or the influence of the opinions of others. American children are born free until they get entangled in debt.
Not just the national debt that has grown seven-fold from the days of George Bush Senior to more than $ 20 Trillion in Trump’s administration; but also from the spending habits of their parents. According to a report by CNBC, by 2017, the average American household had a credit card debt of at least $ 6,375.
So, each child is born to a family already entangled with consumer-driven debt. Now you know why Compulsive Shopping Disorder affects at least one in every twenty adults in America.
Some say that it’s good for the economy while others are less optimistic. The bottom line is Americans are born to shop. It is not a surprise that it is Americans, from Edward Bellamy’s Book, Looking Backwards in 1887, to the days of John C. Biggins, who came up with the concept and the first credit cards.
Today, credit cards are no longer preserves of the banks and there are several credit card companies offering various brands, benefits and of course helping you to shop some more.
There are two main types of credit cards, the traditional bank assured or unsecured credit card and the secured credit card.
What is a Secured Credit Card?
A secured credit card is a card which the bank requires the applicant to make a collateral cash deposit to “secure” any transactions done using the card. The secured credit card usually has a card limit equivalent to the collateral cash deposit and in the event that the cardholder does not make on-time payments, the card issuer can simply dip into the collateral and pay up.
This protects the card issuer from defaulting cardholders. However, if the card owner is diligent and makes timely payments, the card issuer can go ahead and report these timely payments to credit bureaus.
Think of it as a security pre-payment for your spending.
What is an Unsecured Credit Card?
The Unsecured credit card is the more traditional and better-known type of credit card. In this type, the cardholder is not required to have any “collateral cash deposit” held by the card issuer. The card issuer carries the risk of paying for the card holder’s expenditure if they don’t make on-time payments.
In other words, the card issuer relies on the reputation of the cardholder and their diligence in loan repayment to issue the card. For this reason, unsecured credit card holders go through more rigorous vetting before as compared to secured credit card holders.
Other differences other than the ease of qualification include the fees charged, the interest rates, the card limits and the fringe benefits.
Now that you know what is the meaning of a secured and an unsecured credit card and the differences, what’s age got to do with it?
It all boils down to credit rating and how well you can control your appetite to spend.
What’s the Minimum Age You Can Own a Credit Card?
In America, you can own a credit card from your 18th birthday. However, the Credit Card Accountability Responsibility and Disclosure (CARD Act of 2009) stipulates that anyone below 21 has to provide proof of income or get a parent to co-sign for the card. Responsibility for the card increases once you have someone else’s credit rating entangled.
Secured v/s Unsecured Credit Card, Which is Better for You?
We’ll join the bandwagon of financial advisors is saying, a credit card is an excellent way to build your credit rating. However, it can also be the fastest way to torpedo it. People at different stages in life face different issues and therefore there’s need to carefully consider which type of credit card is best suited for their lifestyle.
Let’s Start With the Youngest Age, 18 – 25
This is the age of living out your adolescent discoveries. You are probably in college or just finished college and in your first job. It’s not a surprise to find 25-year-olds who still live with their parents and 18-year-olds who have full-time jobs. People in this age group would probably have one car (handed down as a gift from the parent) and if you live on your own, it is typically in a small studio or apartment. So you are paying insurance for one car, renting a small apartment and sustain not more than one person.
Also, at this age, spending sprees on fashion, parties or other non-basic needs is more common. After all, you seldom get sick and saving for retirement is not a priority while the single debt that you are servicing is your student loan.
Whereas the situations may vary, many young people in America follow this path.
If that’s you, a secured credit card is a better choice. You want a card that will help you to learn how credit cards work at the minimum risk. That is, get to learn how the payment cycle and the billing cycle work, and interest rates and what happens to late payments.
Also, you want a card that helps you to build your credit score.
A secured credit card is an excellent facility to build your knowledge of how credit cards work, mastering payments and building your credit score. After all, if you make on-time payments, the card issuer reports these as positives on your credit report.
Youthful Upcoming Professional 26 – 45
At this age your priorities have changed, for those who choose to remain single, they focus more on their careers. Others start families and become independent of their parents. Your parents are no longer responsible for your behaviors but you have picked up responsibilities, at work, at home, and in the community.
Also at this time, you probably have made some payment into owning your first home and saving for retirement is a reality. You are contending with apps like Trim to track all your financial transactions. Also, you may have picked up a few loans but it is at this period when you look forward to clearing your student loan.
You realize that the really smart guys went through college without accruing massive loans as you did. Here’s how they did it. Also, they began building an excellent credit rating by making on-time payments on their secured credit cards.
But it’s not too late for you to join the league of smart guys.
If you are wondering which is better between secured and an unsecured credit card, let the secured credit card linger on for a while before applying for the unsecured credit card. Also if you are having personal financial troubles such as bankruptcy, a secured credit card will help you get back on your feet.
If you played your cards right in the early days, you’ll have an excellent credit rating, a well-paying stable job, and an offer for a high limit unsecured credit card.
Take it! It is at this age when you need unsecured credit the most. If you are having challenges hitting the credit score you need to qualify for a superb offer on an unsecured credit card, have a chat with Credit Sesame, they’ll help you figure it out and hit your target.
But remember to read the fine print and compare which card gives you the best rewards.
Pre-retirement Age 46 – 64
By now you are an experienced, well-paid professional having major responsibilities, both at work and at home. But it is also at this age when you should ease your foot from the credit card gas. You don’t want credit card bills to eat up your 401 K or any other investment that you’ve made.
Therefore, if previously you held three or four unsecured credit cards, replace some with secured cards. Also, as you approach retirement, make sure you solve any disputes you have with credit card companies and maintain an excellent credit rating. Lexington Law can help you resolve any credit card issues and boost your credit rating. By this time the mortgage you have on your home is doing wonders on your credit score – yes secured long-term loans such as mortgages are excellent for your credit rating.
It is also at this age when you’ll be most bombarded by lucrative unsecured credit card deals. You can compare the offerings and benefits better by logging on to Credit.com. Don’t forget to check the promotions or rewards programs and take advantage of them.
Post- Retirement: 65 and Above
At this age, your focus is on living within your means. The offers of unsecured credit cards dwindle and only a few credit card companies are interested in your business. Ironically now is when you have more time to travel and shop. Also, the card limits and reward programs will reduce significantly.
Keep both your secured and unsecured credit cards and use them for your holidays, travels and shopping. If you have a high limit unsecured card, request the issuer to revise the limit. Give your bankers instructions to make regular transfers from your checking account to your credit card accounts to avoid late payments which are penalized and attract high-interest rates.
Here’s the bottom line. If you are stuck at the secured v/s unsecured credit card decision, the above chronology of life and card of an American can help you evaluate your circumstances and choose which one is most suitable.