All About Secured Credit Cards By FederatedCreditCards.Com Copyright © 2008

From an optimistic perspective, a secured credit card is similar to a standard credit card in a variety of ways. For instance, there is a credit line, it spends like a regular credit card, and is accepted in the same places as Visa and Mastercard. It's plastic, and fits in your wallet or handbag. Many of the same systems apply, such as interest rates, and APR's, and it requires that you pay off the monthly balance in full in order to establish a lasting, and positive financial relationship with your creditor. That's basically right where all the similarities end.

Unlike a major credit card with a standard contract, with a secured credit card, you are required to make security deposit into your savings account. Usually, the required amount is equivalent to your credit line, which is significantly lower than a standard credit card's, --anywhere from $300 to $500. That way, if you ever default on a payment, the money that you deposited into your savings account will be deducted to pay the outstanding balance. However, if you maintain a positive relationship with your lender, the back security fund will not be needed, and eventually, more options will be opened to you.

Secured credit cards are an excellent option for those with blemished credit, no credit, and even people who have filed for bankruptcy. The majority of card issuers also regularly report to all three major credit bureaus, which allows for a faster credit repair. Eventually, some of the options opened up to you may be an unsecured credit card, and an increased line of credit to draw on. Naturally, this applies only for those who consistently pay their monthly balance on time, and without defaulting on payment.

In what ways do Secured Credit Cards differ from Prepaid Credit Cards?

Despite some obvious similarities to ordinary credit cards, --such as being able to make purchases from the same venues you would with a credit card, and looking alike, --Prepaid credit cards are actually more like debit cards, except without the bank account. The credit line is completely dependent on how much money you upload into the card's account, and nothing more than that can be spent. Once you've ran out of money on the card, you'll have to load more money onto it. This also makes it impossible to overdraw, and relieves any payment responsibilities, --you can only spend what you've already loaded into the card.

The differences are that, with a secured card, you only made a one time security deposit, while with a prepaid card, you will need to keep putting money into the card's account in order to use it to make purchases. The deposit on a secured credit card will only be drawn upon if a payment is defaulted or late. Furthermore, a prepaid card will not have any positive or negative effect on your credit history, --while a secured credit card reports regularly to all three major credit bureaus. This can work for or against you depending on how responsibly you manage your account.

Choosing A Secured Credit Card

When choosing any credit card you should pay attention to common important factors. Here are some things to consider:

Fees Annual fees can be tricky, especially those from credit card issuers that cater specifically to those with bad, or no credit history. Usually the fee either reflects the company's assessment of your credit situation; --the worse the credit, the higher the fee. Or, in other cases, the fee is a standard mandatory payment for all customers. Whatever the amount, --on average, anywhere from $30 to $90, --it's important that you ask what is beforehand.

Application fees are sometimes required to obtain a secured credit card. However, if there are plenty of attractive offers from other secured credit card issuers with no application fee, consider taking those opportunities first, and see how it goes. Wasting money on a chance that you'll benefit financially is something that should only happen in Vegas.

Other fees sometimes apply as well, such as monthly maintenance fees, online bill processing, and credit line increase fees. Try to shop around for a secured credit card that has fewer fees. Sometimes these fees reduce your credit line substantially, and over a period of time, you may find that you're spending more money keeping your account active, than you are on purchases. Investigate what kind of fees you're expected to pay, and choose the card that best suits your needs.

Credit Reporting Another important matter to confirm is whether or not the secured card you are applying for, regularly reports to all three of the major credit bureaus. A few secure credit card issuers don't report regularly, usually the smaller ones, and some issuers only regularly report to one of the major bureaus. To repair your credit select a card the routinely reports to all three of the major credit bureaus. A history of on time payments will help to improve your credit score.