What is a Secured Credit Card?

A secured credit card may be your only option if you have little or no credit history, or your credit rating is bad. But what is a secured credit card versus an unsecured credit card?

Most credit cards in use are unsecured credit cards. The lending company provides you with the ability to charge credit up to a set maximum, which is your credit limit.
It is considered 'unsecured' because the credit company does not ask to hold your money as proof that you will pay them back.

A secure credit card is often called a prepaid credit card. If the lender will only issue you a secured card, they will request that you 'secure' the card by opening a savings account, or 'collateral account' with them. You will need to make a deposit to that account equal to the amount of credit they will give you. Credit limits on secured credit cards will vary from institution to institution, but range from about $300 to $10,000.

When you charge using your secure credit card, the payment does not come out of the money you are holding on deposit. You must still make your payments as you would with any credit card.

You must agree to make at least the minimum monthly payment each month. Making your monthly payment on time each month will gradually provide you with a positive credit rating. Paying the credit card off in full each month can help even more.

Make sure that the lending company who provides you with a secured credit card is one that reports your payments to the three major credit bureaus. That way you will be building credit in general, not just with the one financial organization.

Once you have had the secure credit card for a period of time, and shown the lending company that you can manage your credit, you may qualify to apply for an unsecured credit card from that same company. They will make their decision based on both your payment history with them as well as your past credit history.

Beware the Fees!

Unfortunately this is a market where scams and fee gouging can be quite common.

Some lenders will charge application fees, monthly participation fees, program fees, and annual fees. These can add up to huge amounts before you even have the new card. Do your homework first and make sure you are aware of all the fees you will be charged with your new card.

Think you've got it bad with the fees your credit card charges you? Well try this: $247 up-front, for a $300 credit line... And that's not the worst of it! The video explains it all here.

Check out the reviews and features of some of the secured credit cards available today.

The Federal Trade Commission has some advice about secured credit cards and marketing scams.

If you are considering a secured credit card and want access to your credit report and credit scores, look here.

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