Secured Credit Cards

Good credit isn't something you're born with, it's something you earn, and secured credit cards, when used wisely, can be a tool to help establish or repair your credit history.

Secured Credit Cards: A Definition

Secured credit cards offer many of the same benefits as unsecured credit cards. You can use them to make purchases, shop online, hold hotel reservations, serve as rental deposits on cars and musical instruments, and for anything else that requires a credit card.

However, a secured credit card differs from an unsecured credit account, in that you will be charging on your own money, instead of borrowing against a line of credit issued by the credit card company. The interest rate charged runs higher than the average unsecured card, and nearly all secured cards charge an annual fee.

How They Work

• If a credit lender agrees to accept you as a customer, you will be required to deposit money into a special savings account that will be reserved for purchases made with your card.
• The amount of your deposit will be your credit limit, less any fees associated with the account. In some cases, your credit line is only a percentage of your deposit. Sometimes as little as 50 percent. The card issuer may tell you exactly the amount required, or may let you choose how much you want to deposit within a certain monetary range.
• As with unsecured cards, you will be required to make a minimum monthly payment on your purchases, interest will be charged on your outstanding balance, and an annual fee will most likely be required.
• Some secured credit cards also charge an approval fee to open the account, so be sure to check out the specifics for two or more secured cards before you decide to apply.
• As you make the required payments, the money goes back into your designated savings account for this card, less any interest or other fees charged. In some cases, you may also be paid interest on the balance in the savings account.

Who Should Consider a Secured Credit Card?

This type of card may be a good alternative for someone who doesn't have a credit history and/or finds it difficult to get approved for an unsecured credit card. By opening a secured account, the cardholder can begin building a credit history by making small purchases and paying them off on time every month.

A secured credit line is also a useful way for someone who currently has bad credit to begin repairing their credit score. Making and paying off small purchases each month can have a positive affect on their credit report, as long as the credit card company reports to the three major national credit bureaus:

• Experian

• TransUnion

• Equifax

A Few Words of Advice

Avoid carrying over an outstanding balance from month to month. Prove to your creditors and the recording bureaus that you are a good risk by paying your bill in full every month.

Carefully research all fees connected with the account, as they can eat away a significant chunk of your deposit.

Ask the issuer if your account will be reported to the credit bureaus as "secured". If so, it's a better idea to go with another card that will not identify your account in this manner, as it can interfere with establishing or rebuilding your credit.

Ask if your account will ever be considered for unsecured status and how long that might take. Secured credit cards should only be a temporary credit solution that leads to better things down the road, so select a credit card that will offer this opportunity if you earn it.

Conclusion

Using secured credit cards can be a great way to acquire the skills of responsible financial management, and if all goes well, your lender may eventually extend an invitation to elevate the credit line to unsecured status.

This means:

• A deposit will no longer be required.
• Your credit limit will be raised to a higher level, determined by the issuer.
• Your annual percentage rate is likely to be lowered.

If you've adopted good money management skills, you should be ready to take on the additional responsibility.

External Links

It's a good idea to first check with your existing bank to see if they issue secured credit cards, but here are a few additional sources to help in your search. Only you can decide what is a good offer for your situation.

• Union Plus
• Orchard Bank
• Visa

• Laws on Credit Card Fraud
• New Credit Card Laws
• How Do I Get Rid of Debt
• How Does Debt Consolidation Work
• What is a Good Credit Score

• American Express Black Card
• Sears Credit Card
• What Is APR
• Do It Yourself Card Credit Debt Settlement
• Credit Card Generator

• Credit Card Applications
• Bad Credit Cards
• Unsecured Credit Cards
• Prepaid Credit Cards
• Secured Credit Card Ratings