How to Apply for a Secured Credit Card

Secured credit cards are often the only option for those with a scant or bad credit history. A secured credit card requires cash as collateral before the card is issued. Depending on the institution, you eventually may be rewarded for your good credit performance and your secured credit card will be transferred into an unsecured one. Before you apply, know what to look for in this useful credit product.

Difficulty: Easy

Instructions

Shop for a Secured Credit Card

1. Start by talking to an account representative at your bank or credit union. Most banks will offer some kind of secured credit product to their clients and you may be able to link it to your existing checking or savings account.

2. Review the terms and conditions of use for any secured credit card you consider applying for. The "gotchas" to look out for are high application fees, maintenance fees and deposit fees. If you don't look carefully, you may find that the money you use to secure the credit card is eaten up by these charges.

3. Plan to deposit at least $300 or more to open your secured credit card. Amounts required will vary by institution, but the concept remains the same. The more money you deposit, the more credit you can charge.

4. Apply for a secured credit card that does not require an additional application for a "credit insurance policy." Many providers of secured credit cards may attempt to take advantage of those with poor credit by requiring this kind of insurance at exorbitant rates.

5. Check with the institution issuing the card to see how long it will take to convert your secured card to an unsecured one before you apply. Most companies will require at least 1 year of timely payments before they allow this transition.

6. Don't carry a balance if you intend to make the most of your secured credit card's credit rebuilding potential. Make a few purchases each month and pay them off before the end of the card's grace period to help improve your credit score.

7. Don't keep your secured credit card for too long. Financial advisors consider this type of credit product a "stepping stone" towards rebuilding credit, not a permanent solution.

Tips & Warnings

• If you are procuring a secured credit card in the attempt to rebuild your credit rating, make sure that the issuing company reports your good payment activity to a credit bureau. Otherwise, your positive efforts towards creating a better credit score will go unnoticed.