7 Things to Know about Secured Credit Cards
If you've had trouble getting approved for a credit card, it's probably because you don't have much of a credit history or have a poor credit rating. Although some people manage to get by fine without credit cards, it is tough to pay for certain purchases such as travel reservations or Internet purchases without one. Getting a secured credit card is one way to establish credit without too much risk. Here are six things to know about these cards.
- Secured credit cards require you to put cash into an account as collateral. A common amount required to get going is $500. Your credit limit will probably be the amount of the deposit, but some credit card companies may give you a limit that is a little higher than your deposit.
- Not all banks and credit unions offer secured credit cards, but it doesn't hurt to ask at the bank where you do business. Some credit unions may even have cards that don't have annual fees. You can also begin your search here to compare credit card offers.
- Ask about any fees involved with a secured credit card. You may have to pay a fee to apply for a credit card, as well as an annual fee or credit insurance policy fee.
- Find out how long it takes to have the card changed from being secured to unsecured. Usually if you make payments on time and use a secured credit card responsibly for at least a year it will eventually be changed over to an unsecured card.
- Recent graduates, recently divorced folks, and people with bad credit are among those who might benefit from having a secured credit card. But don't let a poor credit history make you desperate enough to accept the first credit card offer you receive without reviewing all the terms.
- Only use a secured card for small purchases and pay the balance in full each month. This will help establish a positive payment history and improve your credit score.
Secured credit cards usually don't have high credit limits, but that's OK. If you have a poor credit history you're better off starting out slow with credit so that you don't get in over your head with credit card debt.
Published 12/17/10 (Modified 11/19/13)