A secured credit card is one that you pay a deposit on. This deposit is held by the company to ensure that you pay your bill.
Generally speaking, the card issuer will keep your deposit as a ‘safety measure’.
You may ask, “Why would I do that”? This is really only for two situations. The first is for people who have lost all of their credit rating and can no longer get any credit from anyone. The second is for those just starting out who have a zero credit rating and need to build a rating up.
There are actually more options for the second group. The first group is more risky because they ‘messed up’ at least once before.
In either case, the idea is to establish a record of responsible credit card use. This is to create trust between you and future potential lenders.
You are showing them that you know how to use your credit in a way that is appropriate. Their chief concern is always losing their investment in you.
If you do not pay your bills, they lose money. They are not in business to lose money. Obviously, when you don’t pay your bill, they have lost out.
If You Are Able To Get A Secured Credit Card
You won’t be permitted to spend above the amount you have on deposit with them.
You do not want to either. You will want to pay your balance every month before the next billing cycle starts.
The reason for this is that you want to show that you are responsible with your credit.
You want to show them that you repay your debts on time, every time.
It may take a solid year. But after that time, you may find that you will be able to get an ‘unsecured’ credit card.
An unsecured credit card is one that is based on the faith of your signature and does not keep a deposit.
If you make it to this stage, you will want to maintain your credit by continuing to be responsible.
We all have to work within the limits of our budget. Once you show them you are responsible, you will want to maintain their trust by continuing to be responsible.
Be Very Careful When Selecting A Company That Offers Secure Credit Cards
You should be extremely careful when seeking out a secured credit card.
It can be the pathway to rebuilding your bad credit past as well as a good way for people who have never had any credit to develop a credit record.
There are decent companies that offer secured cards.
However, the secured credit card industry appears to have a lot of scam artists in it as well.
There are people / companies that might take advantage and hurt you. Do your homework and be very careful with which company you choose.
Some charge much higher annual fees and interest than is reasonable.
Apparently, there are some which are outright scams. They use your whole deposit up in fees that you probably didn’t even know about.
Again, you really need to do your homework before sending your money to anyone.
Beware of those who want a fee before you even get your card, that is a sign of trouble.
You also want a company who reports on your credit use but does not report your card as a ‘secured’ card. If they do, this could potentially scare off other lenders.
A reputable company should understand this point and should not report your activity (credit card use) as being on a secured card.
Finally, even though I said it before, be very, very careful. Check everything out and don’t send your money to just anyone. Make ‘triple’ sure you are working with a reputable company before getting a secured credit card.
Otherwise, you could end up with more headaches than you started with!
The good news is that if you focus on responsible credit card use, you may eventually find your way back to a good credit rating. Of, if you have never had a credit rating, perhaps you can now build a good one.
It might also be to your benefit to understand how the world’s banks work.
Then, there is also Jimmy’s credit repair story
If you enjoyed this, please share it with others and comment below.
{ 11 comments… read them below or add one }
Hi Dave,thanks for those tips.I will surely be careful in selecting a company that offers secure credit cards.
Hi,thanks for those insights! I just got the email from the bank and glad to hear that they already approved my credit line
They said that the amount of money I need to deposit will vary by the card. Most are $300 to $500. My credit limit will either be the amount of my deposit or some percentage above that amount. What can you say?
Now that I’ve read this article I am beginning to understand why secured credit card offers have become all the rage in the past decade. I have been seeing TV commercials for secured credit cards by companies that pay celebrities to act as pitch men in order to persuade young college students and low income persons into applying for a line of credit. I have even seen Russel Simmons on the Black Entertainment channel selling credit to students.
Twitter: davesnape
Good points Kevin. Excellent points actually. It is interesting to stop go consider for a moment that college students are pushed in to really high debt loads through our education system – unless they come from a family with enough cash to handle the excessively high tuitions that colleges are charging today.
And who but our very own government benefits from all of that through the government backed student loan system. My loans are held directly by the government and guess what – they are charging me 8% per year on my debt. With loans as big as mine, they have really taken a lot of money from me. The principle is not much smaller than it used to be either. What a shame. It would have been better to go to school in a country that charges reasonable fees for tuition. In the US, it is completely out of hand.
But I digress – secure credit cards can help those who have really bad credit to rebuild. If a person has good credit there is really no reason to get one of these. In addition, it is important to choose a trustable company – there are a good many scams in the ‘secure credit’ world.
I am glad I found this site on Google. I came across this article while doing some research into credit building. I have been wondering about whether I should apply for a secured credit card in order to make a few transactions to build a new credit line. I once read you could do this or by going into a store that offers a store credit and paying partially for an item and using credit to pay the remainder down the line.
Twitter: davesnape
Hi Lea, I hadn’t heard of that second option. I wonder if that would work. If they reported the payments to the credit bureaus it might help a bit. Thanks for stopping by.
This sounds like a great way to rebuild my credit, I lost my job and got behind on a lot of bills and the house payment was late a few times so now my credit is shot because of late payments. I was wondering how I was going to fix it and I ran across your blog. Thank you so much for putting this together to share with us.
Twitter: davesnape
Hi Melissa, if you found the information to be good here, that means a LOT to me. So thank you for letting me know. Good luck with getting your credit back to solid ground.
This was very interesting, I knew that the un-secured credit cards would help you build your credit up again but I had no idea that there was such a thing as secured credit cards. Is there a minimum deposit that they want you to keep on the card? How easy can you get one of these if you file bankruptcy? Can’t you get un-secured credit cards after a bankruptcy too though?
Twitter: davesnape
Yes there is a minimum deposit and it varies with each company. it could be as little as $100 but you will have to hunt around and check out the best deals. Be wary though, there are some real scams out there that get you in and then throw a bunch of fees at you until your deposit is depleted. Make sure you go with a respected company.