How to Choose a Secured Credit Card

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Those who are searching for secured credit cards have little to feel secure about when it comes to their credit, which is why making the right choice is so important. With many options available, it is critical that you examine each offer carefully so that you get the secured credit card that is right for you and your unique circumstances—and so that you are not surprised by fees, hassles or penalties!


What is a Secured Credit Card?

A secured credit card is designed to help those with credit problems rebuild their credit. The bank takes a security deposit from you, and holds it in escrow, while you get to enjoy a limited spending limit. This allows you to earn the trust of the bank and help show them that you are going to responsibly spend and pay your bills on time each month. When you do these things, you will see your credit score rise, and, hopefully before too long, you will qualify for a traditional credit card that does not require any security deposit.

Before you sign up for the first offer that comes along (of course, you are eager to start rebuilding your credit, but impulsive decisions may have been part of the problem with your credit history in the past, so take it slow!), consider these several factors so that you make the right choice.

How Large of a Deposit Do You Have to Make?

Read the fine print carefully to find out how large of a security deposit you have to make in order to qualify for the secured credit card. The size of the deposit may depend on your credit score, so the lower your score is, the more you may have to shell out in advance to be able to prove that you are now credit worthy. It is common for a secured credit card to charge 100% security deposit, meaning you have to put down $500 to get a $500 spending limit.

There are cards that may offer you up to 150%, or $750 on a $500 deposit, so this is something you might want to shop around for. In the case of getting a secured credit card, you do want the limit to be fairly small, to prevent you from getting into bad debt—something you are trying to reverse!

Will Your Good Credit Behavior Be Promptly Reported to the Credit Bureaus?

This is a very important thing to consider! You want to make sure that your discipline and hard work toward rebuilding your credit is recognized by the credit bureaus, and that getting the secured credit card will actually help you to improve your credit score. Otherwise, why bother?

Also, make sure that you are signing up for an actual secured credit card, not a prepaid debit card, which will not do much for your credit score. If it’s not in the fine print, you can often call the customer service number to find out which credit bureaus your good behavior will be reported to, and on what kind of schedule.

Will You Get Your Deposit Back?

Importantly, you want your deposit to truly be a “security deposit.” This means that the money is held in case you do not make payments on time, or default on the account. Assuming you pay your monthly bill on time and do not go over your spending limit, you should be able to get your money back. Some credit companies may even offer small interest rates on your security deposit, but these are usually very small and you shouldn’t really think of it as an investment (other than making an investment in improving your credit!).

In most cases, you should be able to get your security deposit back after one year of good credit behavior, but check the fine print to be sure.

Where is the Complete Fee Schedule? 

You need to know exactly what you will be charged for, and how those fees will be assessed. There are certain rules that apply when it comes to credit card fees.

Are Automatic Payments a Possibility?

When you sign up for automatic payments, you may not only get a break on your interest rates but you also may qualify for a traditional credit card sooner.

Are You Disciplined Enough to Have a Secured Credit Card?

If you have not carefully considered the repercussions of your bad credit, you may not be ready for a secured credit card. Be prepared to make your payments on time, and do not let the balance build up so that you have to pay high interest rates.

A secured credit card is often the answer for those with poor credit, flimsy credit or no credit. When you build up your credit you will qualify for a perfect, low rate credit card with plenty of perks!


Other posts on secured credit cards:

How to Build Your Credit with a Secured Credit Card

The 5 Best Secured Credit Cards of 2014