CardRates.com Guide: Secured Cards
It usually takes a good credit score and an established credit history to get approved for most credit cards. This makes it difficult for anyone with poor credit history or no credit to get a credit card. An alternative to the typical credit card is a secured credit card.
Make a security deposit
Secured credit cards require a security deposit before you can start making purchases. When you deposit a certain amount with issuer, usually between $300 and $2,500, they will give you the card with a credit line equal to your deposit (think of it as collateral). You can then use the card just as you would use a standard credit card, except it draws from your security deposit amount.
Reporting your usage
Almost all secured credit card issuers report your usage and payment history to the major credit reporting bureaus just as they would a typical unsecured card. This is important to verify before you choose a card. By using the secured credit card and making the monthly payments, you can begin to build or rebuild your credit.
After a period of time showing good payment habits, many secured credit card issuers will refund your security deposit and offer you an unsecured credit card. When you’re researching a secured credit card, look for offers that explicitly state how long it will take before you can convert your account.
Read the conditions
Just as with a standard credit card, secured credit card issuers have different terms and conditions for use. Look at the offers carefully and compare the fees they charge. Many secured credit cards will charge an annual fee of between $39 and $99 or more, regardless of whether you actually use the card.
Look for other fees as well, including things like monthly account maintenance fees, credit limit increase fees and late payment fees. These charges can really add up and quickly eat away at your security deposit.
You also should compare the annual percentage rate or APR the card issuer charges. Even though it’s your money you’re using when you make charges, they’ll still charge you interest. Look for cards with the lowest interest rate you can find.
Also remember to ask about the payment grace period, or the amount of time between when you make a purchase and when payments are due. This allows you to use the card and pay the balance in full when it comes due – avoiding interest charges.
A secured credit card is a great way to build or rebuild your credit. Choosing the right card and using it correctly is crucial to getting your credit and payment history back on track. Best of luck!
Photo source: mint.com
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