Is a secured credit card a real credit card?

A secured credit card is a real credit card, but it is one that is backed, or “secured” by an upfront cash deposit.  A secured card allows a bank to offer credit to consumers who have poor or non-existent  credit scores. By having the consumer make a deposit that is equal to the line of credit, the bank is protected if the customer doesn’t pay.

Sounds great for the bank, but what’s in it for the customer?

From a consumer standpoint, a secured credit card may be worth it if you can’t get credit anywhere else. Paying your bill on time each month will allow you to improve your credit history, and many (but not all) secured cards can be converted to regular revolving credit cards after a period of on-time payments.

You will also be able to use your secured credit card anyplace that accepts a traditional card, for online purchases, or for plane tickets and car rentals, as long as you don’t exceed your credit limit.

Where do you find a secured credit card?

Some credit card issuers offer secured cards. If you apply for a regular card and are declined, you may be offered a secured card instead. You can also check with your local bank or credit union—some offer secured cards to customers and members.

How much money do I need to come up with to open the account?

Most issuers look for a deposit of $100-500, with about $300 being the average. There may also be some fees involved, so make sure you read the agreement carefully.

What will my credit limit be?

You credit limit can vary. It is usually the amount of your initial deposit, but it can sometimes be a little higher—so if you deposit $300, you may get a credit line of $300, or $500, depending on your bank and the terms of the card.

How can I get the limit increased?

Time and careful management will help increase your limit. A year or so of on-time payments will help, as will taking care not to go over your limit. Making a small purchase each month, and paying it off completely is the best way to manage any credit card, including a secured one.

What happens to my deposit?

As long as you pay on time, your deposit is held in a savings account, and will be released when your card is unsecured, or when you cancel the card (provided all charges have been paid). If you have not paid your bill, the payment will be deducted from your deposit, reducing your possible refund.

A secured card may be your best bet if you are trying to rebuild bad credit, or if you simply can’t get approved elsewhere. Many (but not all) secured cards have better terms than sub-prime regular credit cards do, so it is a worthwhile avenue to pursue if you have credit problems—and the money to deposit!