Secured credit cards

The basics on secured credit cards, debit cards

Like it or not, credit cards are a fact of life.

You will need one to make a hotel or plane reservation, or to rent a car, even if you plan on paying cash. Many merchants will require a credit card to accept your check. The responsible use of a credit card builds a good credit rating for the borrower.

But people who have never had credit or need to repair a credit problems that they have had may not qualify for a traditional credit card. For them, a secured credit card may be the only way to establish, or re-establish, their credit.

If that describes your situation, here are some basic answers to the most frequently asked questions about secured credit cards.

What is a secured credit card?

A secured card requires a cash collateral deposit that becomes the credit line for that account. So if you put $500 into the account; you have the capacity to charge up to $500. You may be able to increase the amount of the deposit to add more credit, or the lender bank may reward you for a good payment history and add to your credit limit without requesting additional deposits.

Where can I get a secured credit card?

At securedsolutions.com we're here to help you find the right card for your circumstances. If you're a credit union member, ask about a secured card there. About half of the nation's credit unions offer secured cards to their members and may offer lower interest rates and waive annual fees.

What kind of charges will there be?

This is where securedsolutions.com comes in handy, it pays to shop around. Look for a card that doesn't charge an application fee. Most secured card issuers charge an annual fee. This can vary dramatically. As always, read the fine print. Some people have gotten secured cards and found their entire limit consumed with fees before they ever used the card.

How much money do I have to deposit?

The amount required will vary by the card. Most are in the range of $300 to $500. Your credit limit will either be the amount of your deposit or some percentage above that amount.

Do all banks offer secured credit cards?

The short answer is no. While the major players may not, secured cards are a good choice for people who are just starting out or rebuilding after a major life event, such as a divorce, job loss or serious illness. Keep in mind that some issuers only give secured cards to people who are new to credit, not those who have already damaged their credit.

What problems should I watch out for?

There are plenty of things to watch out for. Some issuers are good. They have low fees and treat customers as customers instead of as cattle. The bad ones take advantage and extort the clients because of their situations.

Recently, the Federal Trade Commission has cracked down on telemarketers illegally charging fees that range from $25 to several hundred dollars in advance of receiving "guaranteed" credit cards or loans. Consumers either got nothing or were just sent credit card applications.

Gather plenty of information when you apply for a card. In addition to such important items as the interest rates, fees and the required deposit, you'll want to get answers to these questions:

Do you report to the major credit bureaus?

The reason for having a secured card is that it's a vehicle for building a good credit history. If the issuer doesn't report to the bureaus, you've lost a major benefit for having the card. Ask if the issuer will flag the report to the credit bureaus as a secured card as this could be a deterrent to rebuilding credit.

How long will it take to convert my secured card to an unsecured card?

It's in the interest of the card issuer should want to keep you as a customer, so most will qualify you for an unsecured card after a period of making all your payments on time. The average is about a year.

How much interest will my deposit earn, and what kind of account does the deposit have to be in?

You can expect that you'll be getting about what you'd get if you opened a savings account at your own bank. The deposit options include a savings account, money market or certificate of deposit. You will also want to know how long the money has to stay on deposit after the account is closed. It's not uncommon so some issuers to want to keep the deposit for a couple of billing cycles to cover any stray charges that arrive.

How do I make the best use of a secured credit card to help build/rebuild my credit rating?

Be conservative; buy a few things and pay off the card every month. You should not get these cards to carry any balance. It will help to pay in full every month to show you've got this excellent credit rating.

At securedsolutions.com it's important to understand that while secured cards can be a bridge to a better credit rating, it's not a good idea to keep one any longer than you have to. All secured cards have annual fees and higher interest rates than regular, unsecured cards. If you have enough discipline to use a secured card responsibly, you will end up with a better card and rating in the end.


 

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