What Is A Secured Credit Card?

What Is A Secured Credit Card?

I am often asked “What is a secured credit card and should I get one?”  Secured credit cards have their place.  They are not the best thing as we all know but there are times when you have to start somewhere and secured cards are a great place to start to rebuild your credit.

Even if you wish to live without credit cards, you need to realize that there are times when you need to have a credit card such as renting a car, buying anything online etc.  Having a credit card that is used correctly will also help you raise your credit score and therefore help when the time comes to buy a home or a car.

If you have poor credit, no credit or are recovering from a previous bankruptcy, a secured credit card might be your only option.

When you get a secured credit card, you will be required to deposit money as collateral.  The amount of money you deposit will be your credit line.  If you deposit $300, you will have a $300 credit line. You can always add more money to increase your credit line.  Usually between 9-12 months the bank will review your account and if you have paid your payments on time and are in good standing, the bank will convert your account to a regular credit card and refund your deposit.  They will also usually increase your limit. If you feel a secured card is for you, you may have a few questions:

• Where Do I Get A Secured Credit Card? If you are a member of a credit union, call them and ask if they offer a secured card. Roughly ½ of all credit unions will offer a secured card.  If not, you can try one of the places shown at the end of this email.
• What Are The Charges?
  Every secured card is different and this is something you should look at.  If you look at my list below, the top 2 do not have any fees associated with the account while the bottom two do have fees.  You should also view the terms and conditions when you go to their site and evaluate them closely.  You don’t want to get a secured card that has so many fees it takes your entire deposit.
• Do I Have To Deposit Money?
  Yes you do. That is the whole concept here. They give you a credit card and report to the CRA’s. This will build your credit. Remember when your credit is bad, you have no credit or are recovering from bankruptcy many places will not give you a chance until you prove you can handle a credit card.  This is the purpose of the secured cards.  You will pay into it what you want your limit to be. Some secured cards do have a minimum such as $300.
• Do All Banks and Credit Unions Offer Secured Cards.
  No they do not. About ½ of all credit unions will offer them but the industry is changing.  Some credit card issuers are offering some subprime cards with a low limit such as $250 but then charging interest rates as high as 79%. The $250 credit limit comes with fees and an incredibly high interest.  Secured cards are a good choice if you can put the deposit in because you will get that money back when the account converts to a unsecured card rather than the fees being added to the card and being lost money.  In many cases, the secured card is the only option.
• Are there any problems to watch out for?
  There always is.  Do your homework and evaluate fees.  Some cards will give you credit but then say you have to buy an insurance policy worth x amount of dollars.
• Do They All Report To The 3 Credit Bureaus?
  No they do not, although most will.  This is important because the whole purpose of these cards are to rebuild credit.  If they don’t report, you aren’t gaining anything.  The cards I have at the bottom of this post all report to the CRA’s.
• When Will It Be An Unsecured Card?
  The average time is one year.  I have been hearing complaints from those who have Bank of America secured card that they are not getting approved for the unsecured card even with regular payments and being on time for the entire year as they still look at your past credit history in their evaluation.
• Now What Other Things Do I Need To Do?
  Never charge your card higher than 30% of your available balance.  30% of your credit score is based on your credit utilization and staying under 30% will give you the optimal benefit to your credit score.

Secured credit cards are not the best and no one wants to have to use these to get going but they are often the only choice you have to begin to rebuild your credit. Go into with an open mind that this is a necessary step and something you need to do for a year.  It isn’t that bad and can’t be worse than how things have already been for you.

Before you know it, you’ll be on the road to good credit and happy that you took this first step.

These are all 3 secured cards that do report to the 3 credit bureaus. Double check before you apply that they do not have annual fees.  As of the time of this post, none of them have annual fees.  Also notice the Platinum Zero card carries a 0% interest.. not just an intro interest rate but lifetime.  Even the other one only has 11% interest which is great for a secured card.  These are very good options.