credit cards

10 questions before getting a secured credit card

The Federal Trade Commission organized a crackdown on telemarketers illegally charging fees that range from $25 to several hundred dollars in advance of receiving "guaranteed" credit cards or loans. Consumers either got nothing or were just sent credit card applications.

Gather plenty of information when you apply for a card. In addition to such important items as the interest rates, fees and the required deposit, you'll want to get answers to these questions:

7. Do you report to all three major credit bureaus? 
The reason for having a secured card goes far beyond being able to buy CDs online. It's a vehicle for building a good credit history. If the issuer doesn't report, you've lost a major benefit. (Tip: If you start getting mailers offering you unsecured cards after you've made several months of payments on time, you'll know that the bank is reporting.) Ask if the issuer will flag the report to the credit bureaus as a secured card. Consumer Action points out that such a flag could be a deterrent to rebuilding credit.

8. How long does it take to qualify for an unsecured card? 
The card issuer should want to keep you as a customer, so most will qualify you for an unsecured card after a period of making all your payments on time. The average is about a year.

9. How much interest will my deposit earn, and what kind of account does the deposit have to be in? 
Generally, you'll be getting about what you'd get if you opened a savings account at your own bank. The deposit options include a savings account, money market or certificate of deposit. Also, ask how long the money has to stay on deposit after the account is closed. Some banks will want to keep the deposit for a couple of billing cycles to cover any stray charges that arrive.

10. How can I make the best use of a secured card to build my credit rating? 
Buy a few things and pay off the card every month. "People should not get these cards to carry any balance," Sherry says. "It seems you need to make a few purchases and pay for them. It helps to pay in full every month to show you've got this excellent credit rating."

While secured cards make sure you never spend more money than you can afford while they force you to save, it's not a good idea to keep one any longer than you have to, experts say.

All secured cards have annual fees and higher interest rates than regular, unsecured cards. If you have enough discipline to use a secured card responsibly, you have enough to use an unsecured card and set up a better savings program on your own.

"We recommend to people that it should be a stepping stone," Sherry says.

Pat Curry is a freelance writer based in Georgia.

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