The Best Secured Credit Cards

To find the best secured credit card, you need to shop around--and that's not just browsing; you need to study the fine print. All secured cards have an annual fee, but they can range from a reasonable amount to an exorbitant cost. Some cards have application fees and charge fees for increasing the credit line also.

Avoid subprime cards

Subprime cards, which are offered to consumers with limited credit, often promise a credit line of $300, but the fees--a processing fee for the first year, an annual fee from then on, a monthly maintenance fee--can leave cardholders with hundreds of dollars of debt before they've even made one purchase. Avoid those cards and go for the secured card instead.

Secured credit cards and your credit report

When you're applying for a secured card, whether through a bank or online, be sure to ask if the credit card will be reported to the credit reporting bureaus--Equifax, Experian and TransUnion. This is the key to building a credit history and establishing a credit score.

The credit bureaus gather information on millions of consumers from lenders--credit card issuers, retail stores, mortgage lenders and others. The data they report on you makes up your credit report. (Every consumer is eligible to receive their credit report for free from each of the credit reporting bureaus once a year. Go to annualcreditreport.com to get yours.)

The lenders report whether you've paid on time, if the account is open, how long it's been open, the amount of the credit line and other information. This information is used to create your credit score, a three-digit number that rates your credit worthiness. There are two kinds of scores: FICO or VantageScore.

Secured credit cards and the impact on the all-important credit score

The FICO credit score, which most lenders use to determine if you're a good or bad credit risk, is based on these characteristics:

• Payment history (Do you pay on time? Have you ever missed a payment?)
• Amounts owed (How much of your credit line have you used? Are you near the top of your credit limit?)
• Length of credit history (How long have you had credit?)
• New credit (Have you applied for a lot of credit cards or loans recently?)
• The types of credit in use (car loans, credit cards, mortgage)

If you're new to credit, spending some time reading the education section of myfico.com can help you establish good credit habits. The higher your credit score, the lower the interest rate you'll pay, and that will save you thousands of dollars during your financial life.

Why a secured card?

The purpose of a secured card is to help you build your credit history so that you can qualify for an unsecured card. If you manage your credit card well, you may be able to get an unsecured card within a year. With that goal in mind, it's important to pay on time, pay your balance in full each month, don't max out the credit card, and never go over your credit limit. With this type of usage, this credit card offer can be a tool to put you on the road to financial responsibility and saving money.

Learn about unsecured credit cards for bad credit.