What Is a Secured Credit Card?

A secured credit card looks, acts and functions in the same capacity as regularly issued credit cards. The difference is that it the debt is guaranteed by a deposit of your funds, not your good faith or credit history. It may also include higher costs and interest rates. Overall, secured cards give many people the freedom of credit that may not necessarily be granted by typical credit arrangements.

Approval

Though a review of your credit report is completed before you are offered a card, a secured credit card is issued only after the account holder places the requisite funds, as determined by the lender, on deposit with the issuing financial institution.

Purpose

Secured credit cards are designed for people who cannot qualify for a typical, unsecured line of credit; who may be looking to build new credit; or who want to rebuild a poor credit history by means of a credit card.

Function

Secured credit card account holders are required to make payments per the terms and conditions of their credit arrangement. However, should they default, the lender can recoup the debt with the deposit of funds on the account.

Identification

Like a normal credit card, a secured card is a thin plastic card issued by a lending institution that contains information to identify, by signature or picture, the account holder, thus authorizing the holder to charge products or services to the account.

Benefits

A secured card provides the account holder with the same features, flexibility and amenities as those who have unsecured credit cards: hotel reservations, vehicle rentals, airline and other travel tickets, produce or service purchases, and cash advances.

Considerations

Though it collects interest, the deposit on the account must remain until the credit line is terminated or the lender agrees that the deposit is no longer necessary.

Resources

• Pros and Cons of Secured Credit Cards
• Using Secured Credit to Rebuild Damaged Credit
• Secured Credit: Complete Listing of Issuers