is a secured credit card a good idea

Are Secured Credit Cards a Good Idea?

Secured credit cards look like credit cards but have one big difference. With a regular credit card, you are technically spending money that you’re borrowing from the card issuer, even if you pay your bills in full. With a secured credit card, you’re usually required to deposit money into the bank that issues the card. If you don’t make your card payments, the lender pulls the money out of your account. In a sense, you’re actually borrowing money from yourself. And, in some situations, a secured credit card can be a great idea.


Creating New Credit

If you haven’t opened many lines of credit, it can be hard to get one started. Most credit issuers lend to you based on your track record of paying back other credit issuers. A secured card can be a good way to establish credit. Since the issuer isn’t taking any risk, it’s a safe account for the creditor to open, and the record that you build with your secured card will begin to create a history that other lenders use to judge your ability to handle a loan from them.


Recovering from Credit Challenges

If you’ve made some mistakes balancing your payments in the past, it can be hard to get approved for more credit. Instead of checking your credit reports and seeing nothing, new creditors see evidence that you’ve had trouble handling credit in the past. Getting a secured card may help show creditors that you can handle the responsibility of credit.


Best Ways of Leveraging Secured Cards

There are a few ways in which you can leverage secured cards to potentially benefit your credit. The first is to select a card that reports activity to at least one of the three bureaus – successfully handling your new credit card won’t help you if no one finds out about it. The second is to use the credit card wisely. Generally, this means always paying it on time and only using a small portion of your credit limit. Finally, you should choose your secured card carefully after shopping around for the best deal. They can vary in how much they charge for annual fees, interest rates and in other terms and conditions.


The Drawback of a Secured Credit Card

Secured cards have one key drawback in that you have to keep an amount of money equal to your credit line tied up with the card issuer. Some issuers won’t even pay you any interest. With this in mind, you may eventually want to transition from a secured card to a traditional unsecured credit card. After using your secured card responsibly for a while, talk to your card issuer to see if you can be approved for an unsecured card to continue helping your credit situation.


About the Author
Solomon Poretsky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.


This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from, Inc.  © 2014, Inc.  All rights reserved.