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Secured Credit Card

There are many things you should know about a secured credit card. This credit card is designed for people that have poor credit or none at all and wish to improve their credit standing. Essentially, you will have to deposit a large sum of money, which will be your credit limit. This sum can range from hundreds to thousands of dollars, which will collect interest while your account is open, and will be refunded to you upon closing your account and paying off your accrued balance. It can pretty much be thought of as a savings account. Secured credit cards have a higher interest rate and always have an annual fee, as opposed to an unsecured credit card. This card helps your credit, by forcing you to pay on your balance every month, and hopefully paying it off in its entirety. Then as you make your payments on time, the company will report this to the credit card bureaus, which will in turn raise your standing. It is called “secured” because the credit card companies are guaranteed payment, should you default on your card; in other words, they can take your deposit. But don’t worry; you would have to miss payments for about six months before any action as drastic as that would be taken.

Most of the secured credit cards have many fees, so it’s best if you do a little research on the card you’re interested in. Not all of them have application fees, so you should look for one without this fee, especially since you could be denied and your application fee wouldn’t be refunded to you. Also beware of companies that require you to pay a monthly insurance fee, this can add up as well.

Scams Associated with Secured Credit Cards
Secured credit card scams have been such a big concern, that the Federal Trade Commission issued a warning for consumers. View the notice from the Federal Trade Commission. This statement basically warns consumers to be aware of deceptive ads that use 900 numbers on advertisements for these cards, since these are not toll free. This is the main scam, since you could call this number, and then be referred to call another 900 number; or they could ask for your information to send you an application, or a list of issuers that offer secured credit cards, in the mail. Also, some issuers don’t report to the bureaus, so this would be a pointlessly expensive credit card. Make sure you ask the company about their fee refund policies if you are denied your application, if they have an application fee, and most importantly, if they report to a bureau!

I’m sure that some people are a little confused at this point, because this sounds a great deal like a prepaid credit card. Well, that is true; however there is one big difference between the two. A prepaid credit card doesn’t help improve your credit, it only gives you access to a credit card for times when that is the only payment method that is accepted, or you would like the convenience of using one. If you only want a secured credit card in order to make purchases online, to rent a car, or to make a hotel or plane reservation, then I would recommend getting a prepaid card instead, since it is a much simpler means of achieving your goal. Prepaid cards don’t have as many fees associated with them, and usually you won’t have as high a deposit to pay. Also, you spend what’s on the card just like a debit card, and no interest charges or credit checks! These credit cards are so accessible that you could even get one at Wal-Mart or someplace similar. This card doesn’t help improve your credit, because the companies don’t report to the credit bureaus.

We would recommend that you get this card, only if you can’t get an unsecured credit card. Hint: it is easiest to get a credit card at the bank you use, so it never hurts to ask. They will probably have a higher interest rate than others, but it’s better than nothing. If you are unable to get an unsecured credit card, and you really want to build your credit, then this is the way to do it, however you can’t make any mistakes, you must at least pay the minimum balance, or if you can, the balance in full each month. Failure to pay your bills on time every month will result in lowering your credit even more, and since the interest is always higher on these cards, you will accrue a small fortune in debt if you do.