Secured Credit Cards – A Path to Improving Your FICO Scores

If you have limited credit history, or past or current credit issues, you may have a problem qualifying for credit cards.  It is possible to get an unsecured credit card, even with bad credit, but it can be very difficult to do so.

If you don't qualify for an unsecured credit card, a secured credit card can be a smart choice.  Some advantages of secured credit cards are that most of them feature easy approval and some can help build, rebuild, or re-establish credit by reporting your account activity to the three major credit bureaus.   Additionally, if you make on-time minimum payments to all of your creditors and maintain your account balances below the credit limits, it is likely the company will eventually qualify you for an unsecured credit card.

Secured credit cards require that you provide a cash collateral deposit, which becomes the line of credit for your account, i.e., the amount of the cash collateral is your credit limit.  For example, if you put $500 down, you will have a line of credit of up to $500.  Such cards are guaranteed by your funds, which act as a security deposit in case you default on the loan with the credit card company.  You will be sent a bill each month for charges that you've made to the card.  Once you get upgraded to an unsecured card or otherwise cancel the account, the amount you deposited up front gets refunded back to you, less any money you might owe on the unpaid balance.

There are often fees associated with these credit cards such as setup fees, annual fees, and plan change fees.  Please read the terms and conditions for each card when applying. Also, it’s critical that you verify that your account history does in fact get reported to all three major credit bureaus.  In addition, be sure to look for low interest rates.

Many of these cards offer helpful features, such as email and text messages to let you know you're approaching your credit limit and to remind you of your upcoming payment due dates.  Also, most have knowledgeable customer service representatives to assist you with questions or concerns.