Secured Credit Cards
A secured credit card works like a typical credit card, allowing you to pay for goods and services, but also requires that the cardholder opens an associated savings account.
The savings account works as the collateral, and thus makes the credit card “secure”. Secured credit cards require an associated savings account because the cardholder most likely has poor credit or no credit history. And the cardholder was likely denied by major credit card companies.
In order to get a credit card, many no credit and bad credit consumers have to turn to secured credit cards to establish, build, or repair their credit. While it may be an effective means of doing so, it doesn’t come free.
Many secured credit cards charge fees, which could amount to hundreds a year, including application and processing fees. And even then you could be denied, so be careful to inquire about the way the process works, and if your funds are refundable assuming the secured credit card is not granted.
Once you get approved for a secured credit card, the creditor will establish a credit limit anywhere between 50-100% of the total deposit you make in the associated savings account. The bank will also pay you interest on the money in your savings account, so it’s not a total loss.
But beware of secured credit card scams, as they are rampant and prey on consumers with poor credit. While a secured credit card may be one of your few options to improve your credit score, getting someone to co-sign with you, or reviewing your credit report might be better options.
If you have bad credit, find out why your credit score is low.