Secured Credit Cards

What are the best secured credit cards?

If you have a bad credit rating, you may feel discouraged about applying for a credit card. It's true that people with bad credit histories will have a tougher time getting a card, but secured credit cards allow consumers to be approved for credit and then start rebuilding their credit rating. This is a good option for anyone who has no credit or has made credit-related mistakes in the past.

How Secured Credit Cards Work

A secured credit card works by the old system of lending based on collateral — you deposit a certain amount of money into a bank account, which is then placed against your credit card in case of default. Normally, banks will pay the interest on your deposit, and your credit line will be anywhere from 50 to 100 percent of the money you've deposited. Many people may also decide to apply for a home-secured credit card, which is linked to the equity in their homes. This can be an extremely risky method of getting credit, however, as you could lose your house if you default on the loan.

The amount you have to put in the account may vary; some banks want hundreds or thousands of dollars, while others may let you have partially secured credit cards, where you pay a low amount (for example, $300) and are able to borrow credit up to that amount. This is similar to prepaid credit cards.

Businesses probably benefit most from this method of credit. Secured business credit cards allow you to build credit for your business (which is harder than building personal credit) while being able to carry business expenses and cut down on overhead. Payments are made by direct deposit every month, so there's no interest.

The best secured credit cards will be honest with you up front about any hidden fees or policies. Often, these cards will carry an annual fee and have hidden processing and application fees. Make sure you know exactly what you're paying when you decide on a secured credit card, and check if any fees will be refunded should you be refused the card.

You do need to make sure this is the right credit method for you before you decide to apply for secured credit cards. While you can rebuild your credit and they are a safe way to borrow money, secured credit cards are subject to the same rules as regular cards. Default on your loan, and you can run into some serious credit trouble. Ensure that you are responsible with your credit, though, and a secured credit card may be your ticket to better credit ratings in the future.

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