Secured Credit Cards

If you do have problem credit, there is a way to get a legitimate credit card and start rebuilding your credit. It’s known as a “secured credit card.”

Like a loan on a house or car, these cards are considered “secured” because you provide some collateral. In this case, it’s in the form of a security deposit.

Basically, you send the credit card company a check, and the company sends you a credit card with a limit based on the amount you deposit.

The credit limit usually is from one to three times the amount of the security deposit—so you might provide a $99 security deposit to secure a card with a $200 limit.

The bank usually puts the security deposit in a savings account. When choosing a secured credit card, make sure your money will be placed into a savings account that will earn interest.

Sometimes, after you’ve built up a good relationship with the credit card provider, the security deposit will be returned to you, along with any interest it earned.

Don’t rush into a secured credit card. The cards usually require application and processing fees and come with a higher interest rates than unsecured cards. But many issuers, including the biggest names in the industry, offer secured cards. Comparison shopping can save you a bundle.

These cards clearly are not the best deal available, but they are a good first step toward rebuilding your credit. Your goal should be to step up eventually to an unsecured credit card with better terms and a higher credit limit.

Next: Conclusion