Secured Credit Cards

A secured credit card is similar to a regular credit card in all ways but one: it is backed by a deposit you make into a bank account, which serves as security for the card. If you default on your payments, the credit card company will use the money in the bank account to cover your debt.

At first, your line of credit will be equivalent to the amount you have deposited in the bank account. If you maintain a regular payment history over time, however, the card issuer will typically increase your line of credit beyond the security deposit. The collateral required varies between card issuers, but something in the range of $300 to $500 is most common.

Secured credit cards offer the same payment convenience as regular credit cards, and they are accepted everywhere where Visa and Mastercard are accepted. They can be an excellent option for people who have bad credit or no credit. It is easy to get approved; even people who have gone through bankruptcy may be able to qualify. The main thing you have to do to qualify is to have the money to deposit into a savings account.

Getting a secured credit card can be a great way to build or rebuild your credit history, because most card issuers report your payment history regularly to the main credit bureaus. This will help improve your credit report faster, provided, of course, that you always pay on time.

Secured cards are also a good stepping stone for getting considered for a regular, unsecured credit card. If you maintain a history of on-time payments over a 12-18 month period, most card issuers will either offer you a regular unsecured credit card or increase your credit limit on your current card above your security deposit.