A secured credit card is for individuals who have never had a credit history, or who have had a poor history and want to reestablish credit. It is a bank credit card backed by money you deposit and keep in a bank account. The amount of deposit varies, but could be as little as $100 to $500. This deposit account serves as security for the credit card in case you do not pay off your credit card bill. Your deposit will earn interest in a regular savings, money market or certificate of deposit account.
Most secured cards have annual fees, late fees and cash advance fees, so you need to “shop around” for the best deal.
This is a good opportunity for people with bad credit – or even a past bankruptcy – to start building a healthy credit record. After you have charged and paid balances for at least one year, your chances of getting a regular unsecured card may be good.
Consumer Action, a nonprofit consumer agency, recommends you ask the following questions when shopping for a secured credit card:
· Do you accept people with bad credit, or just those with no credit?
· Can I qualify for your card if I have declared bankruptcy in the past?
· Will you report my payment history to credit bureaus? (you want them to!)
· What interest rate is paid on my deposit?
· How long must I leave funds on deposit in order to earn that interest rate?
· Will my line of credit on the card be equal to, less than, or more than my deposit?
· How long will it take for me to become eligible for an unsecured card?
