Credit cards are a fact of life.
You need one to make a hotel or plane reservation, or to rent a car, even if you plan to pay cash. Responsible use of a credit card builds a good credit rating, too, marking the owner as mortgage-worthy.
But people who have never had credit or need to repair a poor credit history may not qualify for a regular credit card. For them, a secured credit card may be the only way to establish, or re-establish, credit.
10 questions to ask about secured credit cards:
- What is a secured credit card?
- Where can I get a secured credit card?
- What kind of charges will there be?
- How much money do I have to deposit?
- Do all banks offer secured credit cards?
- Are there any problems to watch out for?
- Does the issuer report to all three major credit bureaus?
- How long does it take to qualify for an unsecured card?
- Will your deposit earn interest?
- How can I make the best use of a secured card to build my credit rating?
If you're in that boat, here are the answers to the top 10 questions about secured credit cards.
1. What is a secured credit card?
A secured card requires a cash collateral deposit that becomes the credit line for that account. For example, if you put $500 in the account, you can charge up to $500. You may be able to add to the deposit to add more credit, or sometimes a bank will reward you for good payment and add to your credit line without requesting additional deposits.
2. Where can I get a secured credit card?
Check Bankrate.com's list of secured credit card issuers. If you're a credit union member, ask about a secured card there. Many credit unions offer secured cards to their members and may offer lower interest rates and waive annual fees.
3. What kind of charges will there be?
This is where it pays to shop around. Look for a card that doesn't charge an application fee. Most secured cards charge an annual fee, and they vary dramatically. Read the fine print. Some people have gotten secured cards and found their entire limit consumed with fees before they ever used the card.
4. How much money do I have to deposit?
Again, the amount will vary by the card. Most allow minimum deposits of $300 or $500. Your credit limit will either be the amount of your deposit or some percentage above that amount.