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If you have amassed a rocky credit history and if you are burdened with a low credit score

How a Secured Credit Card Works

If you’re considering a secured credit card, you are likely either just starting out establishing your credit, reestablishing credit after some bad credit experiences, or still in a bad credit situation and trying to fix as much as you can. In any of those cases, a secured credit card may be the way to go. But you have to watch out for scams!

How a Secured Credit Card Works ... And Works for You

A secured credit card is a bank card backed by a savings account. For example, if the bank approves a $2,000 credit limit on your card, you will probably need to have anywhere between $500 and $2,000 in a savings account. This account serves as collateral for the card—if you don’t pay the bill, they take the money from the account and cancel your card. This amounts to a little bad credit repair with a safety net of sorts.


Beware of Scams ... Stick with Established Providers

So if you have no credit or bad credit, and have saved a little money, a reputable bank or credit card issuing company may give you a credit card. However, there are many secured credit card scams—don’t be fooled! Some of these scam companies are already facing action by the Federal Trade Commission for misleading applicants.

What to Watch Out for to Avoid Scams

Characteristics of the misleading ads are:

  • You must call a “900” number. You will pay for this call, not the company.
  • You don’t find out important requirements—like age limits, etc.—until you spend money on the call.
  • The company does not tell you the fees, percentage rates, and other important information until you call them.
  • The ads don’t list the deposit amounts.

In fact, read all the credit card information they have so you know the various ways interest is computed, how grace periods might affect you, etc.

Some Additional Facts and Factors

Also remember that even though the card is backed by a savings account, you still need to pay the bill. If you leave it to the company to take the money, it’s like not paying the bill and this will go on your credit report. Whether you are looking for a credit card for people with bad credit or starting to build your reputation, check out a secured card—but be careful of scams.

In the end, by taking the time to obtain a secured credit card from a reputable provider, you will be able to better your credit history and your credit score.  In addition, you will have a credit card that will provide you with convenience.