A secured credit card is an option for consumers with bad credit or no credit who have trouble getting a traditional credit card. Secured credit cards require the applicant to make a security deposit that will serve as collateral for the credit card balance. The security deposit is placed in a savings account and held there.
Your credit limit on a secured credit card is based on the deposit that you make. Your credit could be the same as your deposit or it might be some percentage above or below your deposit depending on the credit card issuer. Before you sign up for a secured credit card, make sure you know just how much of your security deposit will go toward your credit limit.
You may pay some fees for having a secured credit card. For example, it’s common to pay an application fee when you first apply for the secured credit card. You might also be assessed an annual fee on the credit card. Understand whether these fees will be subtracted from your security deposit or if they will be charged to your credit card once it’s open.
If you’re looking for a secured credit card that will help you improve your credit rating, it’s important that you look for one that reports to the major credit bureaus. The secured credit card won’t affect your credit if it’s not included on your credit report. Make sure the credit card won’t be listed in a way that identifies it as a secured credit card. It should appear just like all the other credit cards on your credit report.
You may be able to convert your secured credit card to an unsecured one by making a certain number of timely payments. This usually takes about 12 to 18 months with card issuers who do this type of conversion. Even if your secured credit card won’t convert to an unsecured credit card, consider applying for an unsecured credit card after you’ve been making on time payments for more than a year. If your application is denied, wait a few months and reapply.