A secured credit card requires that you deposit a specified amount of money with the card issuing company. This money becomes the amount of credit you have on that card. For example, if you deposit $500 in the account; you can charge up to $500. If you make the agreed upon payments for approximately one year, the card company may then release the funds held as security and issue an unsecured card. Be sure to look for hidden fees and charges. Take time to shop around for the best interest rates and lowest annual fees.

Credit cards are a fact of life.

In today’s world, it is almost impossible to make a hotel reservation, buy a plane ticket, or rent a car without a credit card, even if you plan to pay cash. Some department stores require a credit card to accept your check. So where does that leave you if you’ve never had credit or need to repair a poor credit history? A secured credit card may be the best way for you to establish or rebuild your credit.

Where can you get a secured credit card?

If you belong to a credit union, ask about the possibility of getting a secured card. About half of the nation’s credit unions offer secured cards to their members and may offer lower interest rates and waive annual fees. If that’s not possible, do some research at www.bankrate.com. This website provides a list of companies that issue secured credit cards. Beware of taking offers that arrive in your mail. These often include high fees so be sure you check them out carefully.

Rather than offering secured cards, some banks prefer offering unsecured cards with lower limits and higher interest rates and fees. While you don’t have to deposit money to begin with, you may end up paying a lot more. Secured cards are often a better choice—and sometimes your only choice.

What kind of fees will you have to pay?

Some cards charge an application fee so look for one that doesn’t. You may be required to pay an annual fee and these can vary greatly. Some will demand that you buy an insurance policy along with the card. This is not a good offer. Be sure you read the fine print or have someone explain the terms to you if you’re not sure you understand what is said. Your FFEF counselor can help you with this. If you’re not careful, it is possible to have a large chunk of your deposited money eaten up in fees. Also, find out if it is possible to have the card changed to an unsecured credit card if you demonstrate you have control of your finances and how long it takes before that can happen.

How much will I have to put down?

The amount will vary by the card. Most are $300 to $500. Your credit limit will either be the amount of your deposit or some percentage above that amount.

How should I use the card?

A secured card is a vehicle for building a good credit history. Use it for a few purchases and pay it off in full every month. It is only a stepping stone so don’t keep it any longer than you have too.