Secured Credit Cards

A secured credit card is a way a bank can help you earn or regain a good credit rating, but you have to have cash up front which is placed in a special savings account where it is held hostage until the bank determines you are now credit worthy, and to what degree. Not all banks have them available and the ones that do, don’t necessarily offer them to everyone. It is an expensive way to go. There are annual fees, and the rates are even higher than on a regular credit card so you really must keep it paid up, for your own sake. You may do some research on the net but always check the web address to make sure you are getting the information from the actual bank and not somebody who will charge you an ‘application fee’ and then just forward you a credit application. You may have to do some calling around, too, to find out which of your local banks has a secured card you qualify for. If you belong to a credit union, ask if they issue secured credit cards.

Ask them if:

a. They even have a secured credit card
b. They issue them to your situation. Some banks make them available only to people new to credit and not to people trying to rebuild theirs.
c. What is the minimum deposit?
d. What would be your credit limit? It’s usually 50%--100% of the money you have on deposit.
e. How much is the annual fee?
f. Is there an application fee? If there is, call around. You may be able to find a bank that doesn’t have one.
g. What are the rates? How much is the late fee? (A good time to scare yourself is before you start using the card.) When is payment due? Mail your check at least 5 days before the due date.
h. Can you increase your deposit and thereby increase your line of credit?
i. When and under what conditions will you qualify for an unsecured line of credit? Can you convert the account or will that be a separate account?
j. Shop around. Do business only with banks that respect you. If you already have cash on deposit, you shouldn’t have to buy an insurance policy on top of it.
k. Does the bank or credit union report to at least one of the major credit bureaus? If not, you would be wasting your time because the whole point of having a secure credit card is to build or re-build your credit rating.
l. Is the account identified as secured? If so, that’s not going to help much. It’s a stigma, but if you suck it up and pay in full and on time, eventually you will qualify for an unsecured credit card. It will probably take a year or more.

Beware of Scams
Don’t fall for anybody trying to sell you a ‘guaranteed’ loan or credit card. There is no such thing. Also, once you begin to re-establish credit, you will start to receive unsolicited offers of credit cards in the mail. Shred them. When your secured account has done its job and you qualify for an unsecured account, do your homework and find a card with no annual fees and low interest rates. That way, you’re in control and less likely to sign for a card on a whim. Also, resist the temptation to have more than one card, for now. Prove to yourself you can handle it.

The Book
If you’re just getting on your financial feet, the best personal finance book out there is ‘Your Money or Your Life’ by the late Joe Dominguez and his long-time consort, Vicki Robin. This is the granddaddy of all the get-your-financial-act-together books, many of which are just pale reflections of the original. Get the original. You can find it for cheap at library book sales, thrift stores, freebie boxes, second-hand book stores, on the net at bookfinder.com and, if you must, you can buy it new at any mega-bookstore. It is still in print and will be as long as there are bookstores. If you buy a second-hand copy, flip through it to make sure it’s clean. You want to highlight and underline it yourself because you’re going to have a lot of aha! moments.

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