Secured Credit Cards

Maybe you’re trying to establish credit for the first time. On the other hand, you may be trying to recover from a financial hardship and now have a less than ideal credit history. Either way, you can start building up your credit score by taking a few easy steps. A secured credit card is one of these steps.

Secured credit cards can help you build credit

How do secured cards work?

With a secured credit card, you put a sum of money into an account owned by the creditor. Let's use $500 for example. The credit card company keeps this $500 in a fund in case you don't pay your credit card when it is due. This amount is your security deposit.

These cards work just like a regular credit card, charging you interest on any balance that exists on your account. Whether a secured card has an annual fee of not will depend on the company issuing the card. In some cases, they also have no late payment fees for the first late payment. After that, you'll find yourself owing a late fee. Some secured cards will even give you a cash back option after you've spent X amount of dollars at restaurants and gas stations.

Over time, you can even earn your security deposit back as your credit score goes up. The credit card issuer will generally review your account on an annual basis. When evaluating your credit, they are not just reviewing the account that you have with them, they are reviewing all of your credit cards and loans. Therefore, you'll want to make sure that you're paying everything on time.

How does it help build credit?

On-time credit card payments are reported to the regular credit reporting agencies. By paying your bill on time and keeping your balance low in relation to your available credit limit for at least six months to a year, you'll begin to see your credit rating go up.

As with any form of building credit, this is going to take some time. Pay your bill on time each and every month and you're well on your way to building up your credit score.

Getting a Secured Credit Card

To get this type of card, you must be at least 18 years old. You will be required to deposit a certain amount of money, but it's generally equal to the credit card limit. Credit lines on secured cards start at $200 and go upward to nearly $1000 depending on the company that you’re dealing with.

It’s important to note that some creditors have certain stipulations to qualify for a secured card and may deny your application if you have a recent bankruptcy on your credit report, or don’t have a savings or checking account. It pays to read the requirements before you apply.

A major consideration when choosing a card is whether your information will be reported to the credit bureaus. This is vital if you are trying to establish your credit. Since there are variations in how these cards work, it's best to read the individual terms and conditions for any card you are considering.

With this in mind, you can use the following chart to compare the best credit cards in this category which offer not only reasonable fees, but also report to the major credit bureaus.

A secured credit card is one of the best options available to establish or rebuild your credit. Simply apply for the card, make your security deposit and then begin using your card very carefully. By minimizing your charges and paying on time, you’ll eventually be eligible for a traditional credit card.


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