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Secured Credit Cards

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Secured credit cards are credit cards opened with a deposit in a savings account, money market or certificate of deposit. The amount of money required as deposit, varies from card to card, but generally the minimum is anything, from $250 - $500.

These funds are considered your security and will even earn you a little interest, since it is held in a savings account. Your credit limit is determined by the amount you deposit into the savings account. Sometimes the limit will be for the full amount of the deposit; other times it will be a percentage of the total. Secured credit cards are an excellent tool in the overall process of building or rebuilding credit. So, whether you have no credit or damaged credit, secured credit cards provide you short-term help to build or re-establish your credit history.

If you have never had a credit card, a good first step is applying for secured credit cards. Financial experts say that secured credit cards are extremely useful for people starting out on their credit history. When such a person applies for secured credit cards, he sends out the message that he is willing to take the extra step to establish credit.

Secured credit cards act as a check on people with poor spending habits. This is, because the limit on this card cannot be exceeded. So, if poor spending habits were part of the cause for bad credit, then secured credit cards will help keep spending in check. Also, hotels and car rentals require the use of a credit card. And, if you don't qualify for an unsecured card, still have the option of secured credit cards, with which you can make the transaction.

However, if your credit history is damaged, you may only be able to qualify for secured credit cards either. So, if you have had to file for bankruptcy, you may not qualify for secured credit cards, until it has been discharged.

It is also important to keep in mind, that secured credit cards are credit cards, not a debit card. So, if full payments are not made each month, then interest will be charged on the outstanding balance. And the lending institution will use the security money to pay off the debt, only as a last resort. So, even with secured credit cards it is possible to damage your credit.

While shopping for secured credit cards, watch out for fees that some companies might charge on these cards. Some cards come with fees that run into the hundreds of dollars, eating away much of the credit you secured with the savings account. Annual fees for attractive secured credit cards typically range from $20-$35. But, watch out for hidden fees such as "registration charges" and "setup fees" as well.

So, the financial experts can never stress enough, the importance of reading the fine print while applying for secured credit cards. Doing so will let you know your exact obligations to the issuing company; for example, the grace period, what happens if you don't make a full payment, and what fees are attached if you don't make the full payment. Understanding these details will help make sure you are not further damaging your credit.

Also, just because you have no or poor credit, doesn't mean you have to settle for the highest interest rate. Ideally, interest rates for secured credit cards should not exceed 19%. Shop around and get the most competitive rate available.

Like in all other financial deals, you should be on the look out, for frauds. The Federal Trade Commission advises consumers to beware of offers of easy credit. Also, keep away from secured credit cards offered by "credit repair" companies or "credit clinics" that may offer to clean up your credit history for a fee. You can correct genuine mistakes or outdated information, if you contact the credit bureaus directly.

Remember, using this secured card appropriately and within the set parameters will help rebuild your credit and qualify you for an unsecured card. And finally, whatever the situation you are in, no credit or poor credit, the best way to rebuild good credit is to set up a budget and then stick with it.

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