Secured credit card are special type of credit cards which have some collateral attached with them. Generally the collateral is a bank account or some deposit. Secured credit cards are simply great for those who have less than perfect credit and those who want to start building their credit history.
Secured credit cards generally have an application fee attached with them,
so if you want to apply for a secured credit card you will have to shell out
some money upfront. In addition to this application fees the secured credit
cards have annual fees and relatively high interest rates.
Each secured credit card comes with a credit limit equal to the amount deposited
in the credit card. However the secured credit card issuing companies deduct
their fees from your deposit as soon as you start using your credit card. Let
us look into this point a little further. Supposed you have deposited a sum
of $300 in your secured credit card and the secured credit card has an annual
fee of $120 the credit card issuing company will deduct this annual fee from
your deposit and effectively you will have a credit limit of $180 ($300 - $120)with
The secured credit card companies report to the three major credit bureaus
and hence every spending and repayment on your credit card gets recorded and
reflects in your credit report. If you use the secured credit card judiciously,
things will be great for your credit history. Though the credit limit associated
with the secured credit cards seem pretty low initially, but as the confidence
of credit card companies grow on you and your credit rating improves you will
see an increase in these credit limits. The secured credit card company might
charge some fee for improving your credit limits.
The secured credit card is indeed a great way to start rebuilding your credit
history. It helps you gain financial discipline and stay within the credit limits,
because of the low credit limit initially you are not tempted to charge huge
expenditures on your credit card and pay for them either in cash or by some
other means. Thus a secured credit card helps in more than one ways. It is for
the credit card holder to take advantage of all the features offered by the
secured credit card and regain control over his credit history.