Secured Credit Cards Advice

A secured credit card is a credit card that requires a cash collateral deposit, which becomes the credit line for the deposit account owned by the cardholder. A deposit of 100% to 200% of the total amount of credit is usually required for secured cards. For example, if you put $900 in the account; you can be given credit up to $900. So, your credit limit will either be the amount of your deposit or some percentage above that amount. You will also be able to acquire more credit if you add to the deposit. Most secured credit card plans also incorporate incentives, in which the deposit required may be considerably less than the required credit limit (sometimes as low as 10%), and held in a special savings account. Banks also offer rewards for good payment by adding to the credit line without any additional deposits required.

Secured credit cards are mostly meant for people with a poor credit history or no credit history, to whom a non-secured credit card might not be available otherwise, and are offered as a rebuilding measure for one's credit. Secured credit cards require higher fees and service charges in comparison to ordinary cards, but in circumstances such as long history of delinquency on various types of debt, secured credit cards can be less expensive in total cost and security deposit.

Since you are required to make regular payments as a secured credit card holder, such as annual fee or even a processing fee, the first thing you need to do is to check the fees involved with the credit card. Shop around and look for a card that doesn't charge an application fee. Annual fees can also differ significantly between banks, so look elsewhere if you come across any company that charges exorbitant rates. The typical annual fee will be about $40 to $50 and may even be less. Also remember that since the credit card is being secured by a deposit, there’s no reason why you have to pay a high interest rate.

A secured credit card should company should be able to report your payment history to the three credit bureaus. This is important in reestablishing your credit history, and if they cannot, it’s time to look elsewhere. A secured credit card company should also avoid reporting to the bureaus that you are holding a secured card, while reporting the credit card limit you have, in order to improve your credit score. Credit scores take into account the total amount of credit available to you and the current balance you have on your cards. The company should be able to calculate the Debt Ratio = Current Total Balances/Current Total Credit Limits.

Not all banks offer secured credit cards, and not all the banks that offer them have your best interests in mind. Always remember that while some of the companies are good and hospitable, many of them will use misleading practices. According to Howard Dvorkin, president of Consolidated Credit Counseling Services Inc. in Fort Lauderdale, Fla., “They'll give you the card, but you have to buy this insurance policy for $55 a month."