|There is one thing more painful than learning from mistakes (our own or somebody else's): Not learning from them. - Barbara Johnson|
Secured Credit Cards
Secured credit cards are cards with a deposit account associated with them. The card holder must deposit, typically, between 100% and 200% of the credit line. So if the card holder deposits $2,000, they will be given a credit limit of between $1,000 and $2,000, depending on the terms. These cards are useful for someone with no credit history or poor credit. If payments are made on time, it is a good way to improve your credit score since the credit card companies report regularly to the credit bureaus.
There are some instances where you can get a better deal. Some credit card offers require significantly less money to be deposited, even as low as 10%. This money is held in a special savings account. These offers are made because the credit card companies noticed that there were far fewer delinquencies when the card holder perceived that there was something to lose.
Some credit cards offers will allow you to use the equity in your home as the deposit.
With a secured credit card, you are still expected to make regular payments. But if you default on payments, the credit card company can recover the cost of the purchases it paid to merchants for you by taking that amount out of your deposit. They usually don't do that for one or two missed payment. Usually the deposit money will be used when the account is closed or if it is delinquent 150 to 180 days. If you are delinquent, don't forget that your account will continue to accrue interest and fees. This could result in a balance which is higher than the amount you deposited. So you would not only lose your deposit, you would also have additional debt.
Note that the fees and service charges for these secured credit cards may very well be higher than those of regular, non-secured cards.
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