An overview of secured credit cards

Secured credit cards are credit cards that are backed up by some sort of a deposit. They are secured by some amount of money or by some asset that the card issuer can access should you default (become unable to pay). For those who are high credit risks, this is a necessity so that the card issuer has some sort of assurance that it will get some of the money back.

For many secured credit cards, the asset that make the difference is a security deposit. In most cases, this security deposit is placed in a savings account, or some other interest bearing account. Some secured credit card issuers will accept certificates of deposit and other similar accounts as well. The card issuer verifies that you have put this money in the account. It is considered collateral. If you fail to repay your credit card loan, then the issuer has a right to the money you have in the security deposit account.

While there are a few secured credit card issuers that will allow you to have a credit line amounting to 100% of your deposit, most issuers insist on keeping the amount to something between 50% and 75% of the amount of money in your security deposit account. This way, it is clear that you will not exceed your line of credit to an amount that completely clears your security deposit account (this is especially important if you sometimes raid your security account).

Naturally, there are fees attached to secured credit cards -- sometimes even more fees than those attached to regular credit cards. Here are some of the fees you might pay on secured credit cards:

• Interest fees. Because the money for your secured credit card is a line of credit, it is important to realize that it is a loan. The loan is secured by collateral, but it is still a loan and therefore subject to interest charges.
• Application fees. Some (not all) secured credit cards come with application fees. You will have to pay a certain amount of money in order to apply for the card. Additionally, some cards pay processing fees. These fees may be charged as part of transactions.
• Annual fees. Many secured credit cards charge you a fee each year for the privilege of using their cards.
• Over the limit fees. Like regular credit cards, secured cards have over the limit fees. Sometimes you might go just over your credit limit, as secured by your deposit, and you will be charged.
• Late payment fees. Most secured credit cards charge late payment fees.

Using secured credit cards

A secured credit card can be used just like a regular credit card. Any place that accepts traditional cards will accept your secured credit card. This makes it convenient. Additionally, secured credit cards help you build credit. This is because this is still a loan. You are stilled loaned the money, so it counts as credit. When you make regular, on time payments, your card issuer will report this information to the credit bureaus. This, in turn, results in a higher credit score and a more favorable credit report.

It is possible to establish credit if you do not have a history, and it is possible to rebuild credit that is poor. One of the tools you can use a secured credit card that will allow you access to credit -- even if you have been turned down by other card issuers.