About Secured Credit Cards

Getting a credit card with no credit history or bad credit is challenging. However, obtaining credit is essential to rebuilding or establishing a solid credit history. Fortunately, there are ways to acquire a credit card with no prior history. Secured credit cards are available to most people regardless of credit history. These cards can gradually improve your credit score and help you obtain unsecured accounts in the future.

Function

Secured credit cards are ideal for anyone who can't qualify for an unsecured credit card due to no credit history or a bad credit history. Several banks, credit unions and financial institutions offer these cards, and the requirements are minimal. Secured credit cards are a revolving line of credit. However, applicants have to pay an upfront security deposit before they're approved. Security deposit amounts vary, but in most cases, an applicant's credit limit equals their deposit.

Considerations

Unfortunately, several secured credit cards feature upfront fees or initial costs. Thus, the card has a balance before you make a purchase. These fees may include an annual fee, a setup fee, participation fees and program fees. Additionally, some secured credit cards feature a monthly maintenance fee. Because these fees reduce your available credit, shop around and apply for a secured credit card with minimum fees.

Misconceptions

Although secured credit cards are designed to help people with bad credit and no credit improve a low FICO score, these cards aren't for everyone. These credit card companies don't approve all applicants, and they take several factors into consideration before issuing a secured credit card. You'll have to provide proof of income, and some credit card companies require borrowers to have a checking or savings account.

Benefits

Secured credit cards can help boost a low credit score. In turn, you may be able to obtain unsecured credit and better rates in the future. Plus, most secured credit cards can be converted to an unsecured credit card. By making timely payments each month and keeping your debts low, your credit score will eventually improve. In time, the credit card company may review your account and decide you're eligible for an unsecured account. They'll refund your security deposit, and you'll qualify for a lower interest rate.

Warning

Some credit card companies report a "secured" status to the credit bureaus. This notation can make future lenders nervous, and they may be unwilling to extend credit to a person with a secured credit account. Additionally, secured credit cards carry a high interest rate, which usually results in higher minimum payments.