April 04, 2005

Secured Credit Card

What is a Secured Credit Card?

A secured credit card requires you to open and maintain a savings account as security for you line of credit, while an unsecured card does not. The required savings deposit for a secured credit card may range from a few hundred to several thousand dollars depening on the issuing bank. Your credit line is a percentage of your deposit and can range anywhere from 50% to 100% of the savings account.

Should I Apply For a Secured Credit Card?

If you are just looking to re-establish credit I would recommend going with a secured credit card that allows you to use 100% of the savings. However, if you are looking to save (and make some money) then find one that only allows you to use a percentage of the savings account because they will usually pay interest on your deposit.

Secured credit cards are usually also accompanied with application and processing fees that can range from zero to hundreds of dollars. Always check to make sure what the total fees are before applying to any secured credit card.

Finally, make sure the issuing bank reports to a credit bureau so your credit history improves over time with the use of the secured credit card. If the secured credit card issuer doesn't report to a credit bureau, then the secured credit card will not help you build a credit history and is essentially useless.