Build Your Credit With A Secured Credit Card
For those with poor credit or no credit history, secured credit cards can serve as a stepping stone to unsecured or traditional credit cards. A secured credit card requires the cardholder to make a cash deposit that acts as collateral against the card's balance. Because they are "secured" through this cash deposit, they are an excellent choice for those who might not otherwise qualify for an unsecured credit card.
Just as with unsecured credit cards, not all secured cards are created equal! When shopping around for a secured credit card, ask yourself the following questions:
What is the required cash deposit relative to the card's limit? Some secured card issuers will only extend a line of credit equal to 50% of your deposit, while others may match or double it.
What fees are associated with the card? Annual membership fees are commonplace, so shop around to find a card with a low fee. Try to steer clear of issuers that charge application fees and monthly insurance.
While the interest rates may be a little higher for secured credit cards, you can minimize this expense by comparison shopping. As always, don't charge more on the card than you can pay off in full, so you don't get hit with interest charges, period.
Does the credit card issuer report to the three major credit bureaus? If the answer is no, you're doing little to repair or build your credit. Make sure the issuer reports to Equifax, Experian and TransUnion, and does not mark secured accounts as such.
How much interest will my cash deposit earn? Issuers usually let the cardholder choose the type of account in which the deposit will be held: savings account, money market account or certificate of deposit (CD). Choose the account with the highest interest rate.
Remember: the goal is to build or repair your credit. So use your secured credit card wisely!
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