A secured credit card is nothing more than a credit card with a security deposit. You put money into an account owned by the cardholding bank and get a credit limit on the card that is typically 50% to 100% of the deposit. For example, if you put down $1000, you will be given credit in the range of $500–$1000. It is a great way to establish credit or repair bad credit.
How Do They Function?
Despite the deposit, you must still make regular payments or face late fees and interest. The deposit is usually not debited for missing one or two payments, and is only used as an offset when the account is closed, either at the request of the customer or due to severe delinquency (150 to 180 days).
You don’t have to live with the security deposit forever, either. Most banks will qualify you for an unsecured card after a period of making all your payments on time. The average is about a year.
Which One Do I Get?
Fees and service charges for secured credit cards often exceed those charged for ordinary non-secured credit cards, so they should only be used by people with no credit or bad credit as a way of increasing their scores.
In addition, some banks are better than others, so research them carefully for high (or hidden) fees. You should also be sure that the bank reports to credit agencies. You do not want to spend the next two years scrupulously making regular payments on the card only to find out that it hasn’t affected your score.
So What Do I Do?
If you have bad credit and are looking to improve it, pull all three of your credit reports, get all three credit scores, and call my office at 856-432-4113 to review your situation and see what can be done. You can also contact me through this site.