Facts About Secured Credit Cards

If you have recently had a credit application denied due to bad credit or no credit, a secured credit card may be an option for you to begin (re)building your credit.  A secured credit card requires you, the applicant, to make a deposit into an account.  After your application is approved and you make the deposit you will receive a credit card with a credit limit within 50% – 100% of the deposit you made.  The deposit is held as security for the credit card.  In the event that you become unable to make payments to your credit card the deposit is kept by the bank.

Some secured credit card issuers extend to its cardholders the option of putting the deposit into a savings account, money market account, or a certificate of deposit.  Placing your deposit into one of these accounts allows you to earn interest on the money.

With many secured credit cards, you have are extended the option of converting to an unsecured credit card when you have maintained a positive payment history with the credit card for a certain period of time.  This option – and the amount of time to convert the card – depends on the issuer of the secured credit card.

While secured credit cards are an excellent option for consumers that have difficulty obtaining a credit card based on their credit, one of the cards’ biggest vices is the amount of fees associated.  With nearly all secured credit cards, there is an annual fee required of the cardholder.  In addition to this annual fee, application and processing fees are also required of the applicant.  These fees can end up cutting into the amount an applicant is able to pay for the deposit resulting in a lower credit limit.

When you are applying for a secured credit card, there are several factors you should consider.  The fees required is one of the primary determining factors since this will place limitations on your credit limit.  As with other credit cards, you should be concerned about the interest rate to which your purchases are subject.

With a secured credit card, you should expect to pay a higher interest rate than you would with an unsecured credit card.  Even with this expectation, you should still shop around for the best rate.

Confirm with the card issuer that the secured credit card is reported to the credit bureaus (these cards report).  Also find out from the card issuer if the credit card is reported as being a secured credit card.  The best secured credit cards are those that are reported just like unsecured credit cards.  Future creditors might deem a secured credit card as a red flag regarding your credit risk.