The Truth About Secured Credit Cards Should You Apply For One

Secured credit cards are just that: they are secured by collateral in the form of funds deposited in a savings account with the bank that issues the card. Secured credit cards are a great way to establish or re-establish your credit worthiness. Typically, secured credit cards are issued when the holder is able to offer a type of security deposit to the lender by depositing a pre-arranged amount of money into a savings account, money market or certificate of deposit. Secured credit cards are designed to assist people who have never had credit or those who have bad credit, in order to help them to establish a good credit rating.

Building good credit is important if you ever wish to buy a house, finance a car, or anything else that requires interest payments. Payment performance on unsecured cards is usually reported by banks to the credit reporting agencies, so they can help in rebuilding your credit. Your secured credit cards will also be reported to the credit agencies thus helping you to build up your credit. If used prudently such as paying off charged balances monthly, they can be a good step in rebuilding damaged credit. Use your secured credit card to make purchases because just having the card but not using it does not help you build credit.

With a secured credit card, your credit limit matches the security deposit you provide, therefore, all purchases or payments made with your card are secured by your deposit, which the credit card provider keeps as security against your credit limit. If you default, the lender will use the amount in the security account to pay off the debt and this can result in more damage to your credit rating.

Some credit card issuers limit the available credit on the card to 50% to 75% of the amount deposited for the security. The best secured credit cards, however, allow users to charge up to 100% of the security deposit as long as regular, on-time payments are made. Stay away from cards with high fees that use most of your security deposit.

While secured credit cards require a security deposit and some times additional fees, in most cases approval is guaranteed because most of these credit cards are guaranteed approval and don't require a credit check. Remember being declined seriously hurts your history you can reduce this possibility by only applying for cards with guaranteed approval. You can be sure you qualify for guaranteed approval cards when you apply for credit cards like secured credit cards that are intended mainly for students or young working persons. Even though you have a poor credit history you can apply online for a credit card and receive an online credit card approval for guaranteed approval cards.

Secured credit cards are generally offered to people who are high risk and either have no credit history or a poor credit history. Secured credit cards are for individuals trying to establish or repair their credit. Because credit card issuers have begun to realize that many people cannot qualify for standard credit cards, secured credit cards are now available. In addition to re-building a good credit record, secured credit cards are also useful for establishing credit for people with no previous credit record. Summary: Whether you have no credit or damaged credit, secured credit cards are a good tool for building a good credit history.


Note: The information given in this article was correct at the time it was written. However, the author does not guarantee the correctness and completeness of this information at any time. The Credit Card Market is constantly changing and you should make sure you check for the latest rates and terms before applying for any credit card.