Build Your Credit Score with a Secured Credit Card

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Does it make sense to get a credit card that's tied to a bank account? If your credit score is in the poor range, a secured credit card can be a very good choice.

Here's how a secured credit card works.

  • You apply for a credit card with a bank and agree to open an account with them that's linked to that card. The money that you put into the account functions like a security deposit on your credit card.
  • Your credit limit depends on the amount of money you deposit into the account. In most cases, every dollar in the account is a dollar that you have in credit.
  • You charge purchases and/or get cash advances with a secured credit card just as you would with any credit card.
  • You get monthly credit card statements and you are expected to make payments on this account just as you would any other account. You can pay the entire balance each month or make payments over time, just as you would with any credit card.
  • If you don't make payments, the bank will take the money it's owed from the account that's linked to your card. (Of course, if the bank has to take this action, it will further harm your credit record.)

Even if you have no credit or poor credit, a bank may be willing to issue you a secured credit secured credit card because it's not taking the risk of losing money. It collects either way.

Why would I want a secured credit card?

A secured credit card offers several benefits. First, it can provide access to credit for people who wouldn't otherwise qualify for a credit card. If you've ever tried to make a plane or hotel reservation without a credit card, you know how important that piece of plastic can be in today's society. A credit card also comes in handy in many business and social situations.

Second, a secured credit card can help build or rebuild your credit score, since banks usually report your payment activity on that card to the major credit bureaus (Equifax, Experian and TransUnion). If you maintain good habits - paying your bills on time and keeping your card utilization rate at 30 percent or below -- your credit score should improve as you demonstrate that you can handle credit responsibly.

Third, a secured credit card can help you control your spending habits. Your credit is limited to the amount you have in your account. You can't get in debt over your head with a secured credit card.

Choosing and using a secured credit card

There are many secured credit cards available today, but some are definitely a better deal than others for the account holder.

You'll want to avoid cards that charge you an up - front application fee or a monthly fee to maintain the account. Make sure you ask when you're applying if there are any other fees associated with the account.

Compare APR (annual percentage rates) on a few secured cards. The rates are going to be high, as they would be for any card that's issued to a poor credit risk, but you may be able to find one with a slightly lower interest rate. (Better yet—pay off the card balance each month. That way you won't be paying any interest.)

Make sure that the bank reports your card usage to a credit bureau. That's very important if you want to use this card as a means of rebuilding your credit record or establishing a good credit history.

Finally, don't confuse a prepaid debit card (sometimes referred to as a prepaid credit card) with a secured credit card. There are many differences between the two, but the most important - if you want to improve your credit score - is that banks do not report prepaid card activity to credit bureaus. Stick with a secured credit card if rebuilding credit is one of your goals.

One secured credit card offer currently available on the site is from Capital One. The Capital One® Secured MasterCard® requires a minimum security deposit of $49, $99 or $200, depending on your credit history and application information. That minimum deposit will get you a credit line of $200. To get more credit, you can increase the security deposit up to a maximum of $3,000.

The card also carries an annual fee of $29, and a variable APR that's currently 24.9 percent.

Check out our website for more details on this and other secured credit cards.

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Please note your financial situation is unique and our tips & advice presented here may not be appropriate for your situation. recommends that you seek different advice & opinions from your own accountant or financial adviser who understands your individual circumstances before making any important decisions or implementing any financial strategy.