Secured Credit Cards - the Good and the Bad

By: Michael Killian

Secured Credit Cards Can Be Good

If you are unable to get a normal credit card because of poor credit, all hope is not lost. A secured credit card is different in that it utilizes funds a consumer has placed in a savings account. The secured card is protected by the savings account. Therefore the consumer is "borrowing" from his or her own account. In this way the consumer can re-establish their credit repayment history thereby exhibiting improved credit worthiness. Some secured cards even come with a conversion feature allowing an upgrade to an unsecured credit card after a successful repayment history of a pre-determined length of time.

Credit cards in general can be exceptionally beneficial to the consumer. Secured credit cards provide all the same benefits. But additionally a secured credit card offers the consumer with less than good credit an opportunity to build credit history, which is 35% of a consumers credit score.

You can obtain a list of financial institutions offering secured credit cards by sending a $4 check or money order to:
Secured Credit Card List BHA Customer Service
524 Branch Drive
Salem, VA 24153

There is also a free list on line from Bankrate.com or you can find a list of financial institutions offering secured credit cards using your favorite search engine by simply searching for the key words "secured credit card". Be aware that different companies offer different terms, with fees and rates varying widely. Obviously some companies are better than others. Some just want to charge you fees while others provide a fair service. (See below for potential problems with some companies.)

My best recommendation is to check with larger banks and especially credit unions locally and ask if they offer a secured credit card program. You might also ask them if they report to all 3 credit bureaus and how often they report since one of your main concerns is rebuilding credit. Also check to see if they offer a conversion to an unsecured card and after what period of time.

Secured Credit Cards Can Be Bad

Many years ago I wrote an article saying that credit and credit cards are the agony and ecstasy of life. I have not changed my opinion. Like all credit cards, a secured credit card can make the impossible possible. But it can also drive the unsuspecting consumer into the ground or even worse Bankruptcy Court. Fortunately a secured credit card will not permit you to spend more than your savings amount. However, should you fail to make on-time payments, you may find yourself not only without access to your secured account, but without future use of any secured card from any source.

When selecting a secured card, be on the lookout for excessive administrative and set up fees as well as high interest rates. There should be no application fee nor "insurance costs" unless you feel insurance is necessary. There may be an annual fee but shop around for interest rates and annual fee costs.

The Federal Trade Commission (FTC) offers the following warnings. Be aware of:
Offers of easy credit. No one can guarantee to get you credit. Before deciding whether to give you credit, legitimate providers examine your credit report.
A call to a "900" number for a credit card. You pay for calls with a "900" prefix. You may never receive a card.
Credit cards offered by "credit repair" companies or "credit clinics." These businesses also may offer to clean up your credit history for a fee. [Most consumer advocates recommend against these clinics.]

Of special note are callers offering secured credit cards as well as offshore secured and unsecured credit cards. There are some very good offshore-unsecured creditors but most marketers of secured or unsecured offshore versions are more than likely scam artists.

Report suspected credit fraud and scams to the National Fraud Information Center (NFIC), a project of the National Consumers League. They are available at 800-876-7060, 9 a.m. - 5:30 p.m. EST, Monday - Friday. NFIC is a nonprofit organization that operates a consumer hotline to provide services and assistance in filing complaints. NFIC helps the FTC and state officials by entering complaints into a computerized database to help track and identify fraud operators.

Readers will probably be interested to know Mike, the author of this article, also offers a free debt elimination mini-course via e-mail. You can enroll at

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