Be Sure You Understand Your Secured Credit Card

A Credit Article Contributed by Annie Bauers

How Does a Secured Credit Card Work?

You have to put down a deposit to get a secured credit card. How this works is that you will put a specified amount of money into a savings type account with the company that issues the card. The money is to secure the card. This means if you put $100 in this account you will be given a card that works just like a regular credit card but your spending limit will be $100. If you put $500 in the savings type account or $700 these will be your limits.

The bank will not keep your money unless you don't pay. Think of the money you put into the account as security; thus the name of the card. After about a year if you have made all of your payments on time your deposit will be returned and you can still use your card. Many consumers who can not secure a regular credit card because of bad credit or no credit get a secured credit card so they can build their credit.

If I Get a Secured Credit Card Will I Ever Be Able to Get a Regular One?

Absolutely. If you are smart and use your secured credit card to build your credit you will be able to apply for a regular credit card with lower interest rates, reward programs and purchase discounts! You are not penalized for having a secured credit card you are penalized if you don't make payments on the card. So be sure to make all of your payments on time. If you have a secured credit card you probably have a low limit anyhow.

You should take advantage of this and learn how to use your credit card to your credit advantage. You will also learn how to manage your finances and not over spend. So don't despair bigger better cards are in your future and so is bigger better credit.

Do I Have to Pay to Get a Secured Credit Card?

Yes and No. When you get a secured credit card you will have to give the bank that is issuing the credit card money to keep in an account. This is to guarantee the bank that if you make purchases with your card and don't pay them they will get the money. Usually consumers who get secured credit cards either have no credit or bad credit so this deposit is insurance to the lender because you are a high credit risk. The bank will not keep your money but they will keep it for a specified time.

That amount of time and the conditions under which it will be returned will all be spelled out in writing so read your paperwork! Generally your money will be returned in about a year if you make all of your payments on time. You will not be issued the card until this deposit is made so it will cost money out of your pocket initially.