Secured Credit Cards - Part 1?

Answer 1

People can get themselves into trouble with credit cards. That said, credit cards can be a powerful financial tool if used properly. But what if you don't have significant credit history to qualify for a card – or you have the kind of history that you wish you could just forget about?

If you've had some issues with debt in the past and find yourself unable to get a loan or a credit card it may be because your credit history is "damaged". Not to worry; there are things you can do to repair your credit history. One of the steps available to you is to obtain a secured credit card. (This technique also works to initially establish a credit history if you need to do that).

But, you say, I've tried getting a credit card and I was turned down. Well, a secured card works a little differently than a traditional credit card.

Here's how it works:

1. You make a deposit of collateral into a savings account tied to the card.
2. The secured card is issued to you with a credit limit equal to your deposit.
3. The deposit you made becomes frozen in the account until your credit card account is closed. Neither you, nor the creditor can touch it unless certain criteria are met.

So essentially what is going on in this transaction is similar to what happens when a bank issues a loan for which it requires you post collateral. The deposit you make into the savings account protects the creditor against financial loss should you walk away from the account, deciding not to pay. Should your credit account become uncollectable the creditor then has the right to invade and confiscate the deposit account balance.

If you're interested in finding out more about this option, I will be posting some additional detail in my next post. To get started with secured credit cards ask someone at your bank to get you pointed in the right direction.