Best and worst secured credit cards for 2012

Millions of Americans have suffered financially as a result of the recent credit crunch, and many of them have been left with damaged credit reports. One way of starting to repair such damage is by obtaining a secured credit card. With these, you deposit a sum up front, usually a minimum of $200-$500, which normally becomes your credit limit. You then demonstrate financial responsibility by making regular on-time payments.

You may earn interest on your security deposit, though that's unlikely to be over 1 percent per year. But in all but one case, you'll pay much more interest than that on your outstanding balance.

Providing you use your new secured card responsibly, and you choose one that reports your activity to all three big credit bureaus (Experian, Equifax and Transunion), you may well qualify for a mainstream credit card with some perks in a year or two.

Best secured credit cards

Consumer Action recently published the results of its latest survey of secured credit cards, and its report was both authoritative and informative. It found one such product (the Applied Bank Platinum Visa) that charged 0 percent APR on outstanding balances. However, the attractively low APR is offset by its monthly fees, which came in at the equivalent of a hefty $119 per year.

Among the best deals Consumer Action found were HSBC's Orchard Bank MasterCard and the Orchard Bank Visa Card. The secured versions of both these cards have great credit card rates of 7.99 percent APR, and reasonable annual fees of $35. HSBC also provides a 25-day, interest-free grace period on purchases you clear each month. Most, but not all, issuers provide grace periods on secured cards.

The report also noted the Capital One Secured MasterCard, a "partially secured" card in which qualified borrowers can put down $49 and get a $200 line of credit.

Just be careful to avoid those really predatory credit card companies. In a Nov. 29 press release, Linda Sherry, Consumer Action's director of national priorities, observed:

We believe that secured cards can help disciplined consumers rebuild their credit, but some cards out there are best avoided. Consumers who are working to rebuild a damaged record do not need to dive back into debt, particularly when secured cards are available with reasonable rates that pay cardholders interest on security deposits.

Borrower beware

Recently, IndexCreditCards.com carried a feature article, "Secured credit cards and the Rottweiler tendency," that warned readers to avoid one especially predatory issuer of secured credit cards. At the time, First Premier Bank of Sioux Falls, S.D., charged an incredible 49.9 percent APR on outstanding credit card debt along with:

1. A $75 annual fee (reduced to $45 during your second year)
2. A $6.50 a month maintenance fee (waived during your first year)
3. A $25 fee for every $100 increase in your credit limit, once you qualify

The article concluded: "If you're in trouble, by all means use a secured credit card to give yourself some breathing space, and rebuild your credit score. But if only First Premier is prepared to take you on, our advice is to forget it."

Credit cards aren't for everyone

And it's true that not everyone is likely to qualify, even for a secured product. Some credit card companies won't accept your application if you're still going through bankruptcy or you have recent delinquencies. However, if your bankruptcy has been discharged and you've kept up to date with your bills over the previous few months, you stand a better chance of seeing your secured credit card application approved.

Published 12/19/11 (Modified 3/3/12)