Primary use – Building credit when you have no credit. These credit cards are also extremely useful for rebuilding credit when you have bad credit. Either way, you are a high risk for a bank or card company because you don’t have a history of paying your bills on time. Because of that risk, these lenders will generally not allow you to take out unsecured cards until you make some progress.

How they work – You put down a deposit with a card company, and they issue you a credit card with a limit equal to your deposit. From that point forward it works like a regular card. You have to make payments each month and those payments are reported to the credit bureaus, if you choose the right card company.

Limits – The limits for secured credit cards are usually equal to the amount you put down for your deposit. When I took out my first secured card, I believe that the limit was $200, because the deposit was $200. I could have sent them $1,000 if I wanted to get a limit of $1,000 but there isn’t much point to that. The purpose in using a secured card is to establish on-time payments and the dollar amounts are somewhat irrelevant, as long as you aren’t using more than 30% of your limit.

Interest – These cards generally have interest that’s quite high. My secured card had a rate close to 26%. This means that you need to pay off the card in full each month, otherwise that money will add up quickly. Never let yourself pay 26% interest on anything. Some secured cards are closer to 23%, but that’s still a huge amount of interest.

Fees – These cards usually have activation fees, and annual fees. I believe that my activation fee was $75 and my annual fee was $35. The good news here is that you won’t have to use the card for more than one year. After that, you will probably be able to qualify for a better, unsecured card. I was able to get the bank to upgrade my card and refund my deposit after I made on-time payments for a year.

Warnings – First and foremost, make sure that the secured card you choose reports to all three credit bureaus. If it doesn’t, it won’t be good for building your score on all three bureaus and you never know which bureaus a lender is going to check. Also, make sure that you understand the fees up front. These cards are NOT cheap. They have high interest rates and fees – expenses that you want to understand before you proceed. For me it was well worth the investment. I now have awesome credit and my secured card helped me to get started.

Be very careful when you choose a card of this type. Some lenders will force you to pay ridiculous monthly fees. Some companies will force you to buy insurance that costs as much as $75 per month. I had to pay my annual fee each month – it was split into payments- but that was the only fee I paid monthly.

Similar Content:

  1. Finding The Best Secured Credit Cards When looking for a credit card, you will notice that many things affect what type of card you can...
  2. Secured Credit Cards I owe my jump from a sub-500 credit score to a 771 credit score primarily to secured credit cards....
  3. Do Secured Credit Cards Raise Your Credit Score? Today we had a question come in from a reader that asked, “does a secured credit card immediately boost...
  4. Using Secured Credit Cards To Improve Credit There isn’t any reason to feel embarrassed by bad credit. When the economy hit rock bottom many people lost their...
  5. Can Secured Credit Cards Help To Improve Credit Ratings? There are a lot of people out there who would like to improve their credit ratings. Some of them...

Tags: , , , , , , , ,
Share this post on: