Perhaps you’ve heard of secured credit cards in your search for credit. Secured cards are the best option for people with bad, or no, credit. Having a secured card can significantly increase your credit score. There are all kinds of secured cards, some have higher limits some have lower. There are secured cards with large deposits and partially secured cards with lower deposit requirements. Some secured cards have higher interest rates than others and some have fees that are ridiculous. Knowing which card is best will help you build credit properly. So what exactly is a secured credit card?

Typically, when one applies for a credit card, your credit score is evaluated and the type of card you’re approved for is based off that score. A good FICO score, above 650, will net you the best interest rate and repayment terms as well as a high limit card. A poor FICO score will either involve a decline or an offer for a secured card.

A secured card is a collateral based credit card. They require a deposit before issue of the card. The borrower sends in, or direct deposits, a certain amount and the lender issues the card based on that amount or a portion thereof. Some secured cards require a full deposit and some only a partial one. It’s depending on the credit of the borrower. If your credit isn’t good, but not terrible, you might qualify for what’s known as a partially secured card. Partially secured credit cards only require a fraction of the full deposit. Bank of America offers one that is only $99 and has a $500 limit. Keep in mind that this type of secured card is issued to the highest of the poor credit borrowers.

As with all secured cards, it’s important to note that fees, interest rates and other requirements are ridiculously expensive. While secured cards are a great option for borrowers that have poor credit, they aren’t a viable option long-term. In the long run they will end up being very costly. If you have poor credit, plan on using a secured card for approximately 12 months. During those 12 months use and pay off the cards monthly if possible, but always make sure to pay a little above the minimum amount due. At the end of the 12 months, check your credit score again and if it is above 620 try and apply for an unsecured credit card, if you need a credit card at all.

Be wary of cards that charge fees in the total amount of the deposit. Many secured card lenders will charge fees upwards of $300-$500. If the only companies that will approve a card for you are the high interest and fee cards, then plan on making large monthly payments to bring the card down to manageable amounts. It’s important to remember that any amount on the card accrues interest. Pay down the cards as soon as possible and close them out when your credit has been repaired.

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