Should you get a secured credit card?

Answer 1

Unsecured Credit Cards Are Better for Rebuilding from a Bad Credit Rating.

Get an unsecured credit card and charge only small amounts. Pay it off in full each month. Make sure you never go over 30% of your credit limit. For example: with a $300 limit, never create or keep a balance over $90.

Secured credit cards may do less, or nothing, to rebuild your credit. If the card issuer doesn't report your good habits to a credit bureau, the card can't help you build a good credit history.

If they do make reports to a bureau, then they can be an effective way to begin to re-establish a good credit history.

(Your credit history is maintained by reporting agencies i.e. credit bureaus; they collect information reported to them by banks, mortgage companies, department stores, and other creditors.)

Here are some things you may wish to keep in mind:

1. Secured and unsecured credit cards can be used to pay for goods and services. However, a secured card requires you to also open and maintain a savings account as security; an unsecured card does not.

2. The savings balance required for a secured card may range from a few hundred to several thousand dollars.

3. The amount you can charge on your card is a percentage of your deposit, typically 50 to 100 percent.

4. Usually, a bank will pay you interest on your savings deposit. Ask what it is.

5. You may have to pay application and processing fees -- sometimes totaling hundreds of dollars. Before you apply, be sure to ask what the fees are, and which will be refunded if you're denied.

6. You still pay interest on the charge account balance - a higher interest rate than an unsecured card.

7. Typically, a secured card requires an annual fee. Ask whether you can prepay when it is listed on a monthly statement, or whether the fee first goes onto the charge account.

Secured credit cards require a lot from consumers, and many of them are better left alone. Some marketers of secured cards make deceptive advertising claims to entice you to respond to their ads, or leave out important information, such as:

1. If they provided you a phone number with a (900) area code, don't call it! Your phone company is billed the moment you make the call, and you will owe them $2, $50, or Even More!

2. They may charge more, and have more confusing types of fees. For example: an Application fee, and Application Processing fee.

3. Be prepared. Resolve to get every question answered clearly. If there is a non-refundable fee, an unscrupulous salesperson may try to delay or distract you until you have committed, not quite answering certain questions. This way they may earn some commission, even though they know you are likely to be disqualified - or know you are likely to reject the written offer. (Why would you pay to apply if you can see it is a no-go?)

4. Ask about all the eligibility requirements like: Required Income, Age Limits, Residency, or other Disqualifications.

5. What interest does the savings account earn? Is that competitive? Is there any penalty for deposits, and then withdrawals? Are there advantages or penalties for maintaining a higher balance? (Besides having the credit limit stay constant?)

6. Will the card issuer report my good habits to a credit bureau?

7. What charge account balance should I always stay under for the best possible credit score?

Here are more opinions and answers from other FAQ Farmers:

One of the best secured cards out there is from National City Bank. If there is a location near you, just apply at the bank; they will send it in for you. Otherwise, use their website. It may [still] be difficult to find the secured card application on the website. (Ignore the Buxx card - that is not it.) Find their phone number from the website, call the number, and request an application.

Orchard Card is the next best card requiring only $250, but they have some fees. I believe Wells Fargo Bank offers a secured card. I don't know anything about their terms though.