Secured Credit Cards As a First Credit Card

A Credit Article Contributed by Mark Mcclelland

Is a Secured Credit Card Right for My First Timer

Are you considering getting your teenage student a secured credit card, a traditional credit card, or a debit card? If so, are you actually clear on the relevant differences between the types or cards available? Well, if not, fear not, because what follows is a brief roundup of some of the more salient facts.

First off, you need to understand the major differences between the various card types themselves.

A traditional credit card give you access to "unsecured" credit. That is, the card issuer is willing to loan you money based solely on your good credit history. You make monthly payments to pay off these loans, and the card issuer adds interest charges to any unpaid balances. These cards can build, or damage, your credit rating.

A secured credit card gives you access to "secured" credit. That is, the card issuer is willing to loan you money, but only an amount that doesn't exceed the value of a security deposit you previously made to "secure" your loan(s). You make monthly payments to pay off these loans, and the card issuer adds interest charges to any unpaid balances. These cards can build, or damage, your credit rating.

A debit card gives you direct access only to funds in your checking and/or savings accounts. No monthly payments are necessary as the monies are transferred directly from your bank accounts to the vendor when you make a purchase. These cards generally have minimal, if any, affect on your credit rating.

Now, given the above, it should be clear that if the goal is to help your teenager build up their credit history, a debit card is certainly not the right vehicle. So what about a traditional credit card? Well, it's actually quite difficult to get unsecured credit if you don't have a good credit history to begin with, so that leaves us with a secured credit card.

What Options are Available for a Secured Credit Card

Although there are quite a number of options available for secured credit cards, especially since your teenager probably doesn't have any negative credit notations, there are not quite as many as are available with unsecured credit cards. Regardless, you have choices regarding the types of security deposit accounts you prefer: savings, money market, or certificate of deposit accounts.

You have choices regarding the actual amount of the security deposit, that may, in turn, affect the interest rates available to you. And you also have choices regarding the fees, with some cards offering no fee but higher interest rate, while others offer low fees with lower interest rates.

But one thing you don't have to bother looking for is a secured credit card that offers a reward program.... there isn't one. Rewards programs are generally available only to those with established credit histories, i.e. unsecured credit cards.

What to Look out for When Searching for Secured Credit Cards

All the above notwithstanding, you've absolutely positively got to read the fine print. In addition, the FTC suggests that there are certain signs that should warn you away from some offerings, like any offers that promise easy credit - since no legitimate offer can guarantee that you'll be extended any credit at all. Also you need to be wary of offers that require that you call a 900 number, or of any other offers that sound too good to be true since they most likely are.