Secured Cards
Secured Credit Cards

Secured credit card are perfect for people who want
to build or rebuild their credit. It is great for
young people who have not yet built a credit history,
as well as people who have suffered credit setbacks
such as bankruptcy. Consumers who have difficulty
obtaining a standard credit card often find secured
credit cards to be their only option.

A secured credit card is a special type of credit card
that is linked to a savings deposit account. In order
to obtain the card, the consumer must deposit an amount
equal to the credit limit into the savings account.
For example, if the credit card limit is $1000, she must
deposit $1000 into the account.

The savings account acts as a safety net for the bank
issuing the credit card as they can deduct payments
from the account if the cardholder fails to pay. Without
this safety net they would not agree to issue the card
to someone they consider especially risky.

Even with the savings account in place to protect the
interests of the bank, the cardholder is expected to make
their monthly payments as they would with a regular credit
card. Their monthly payment will not automatically be
deducted from their savings account.

If the cardholder begins missing payments, they will be hit
with the same late fees and interest rate hikes that regular
credit card holders experience. The funds in the savings
account will only be used in cases of severe delinquency or
when the account is closed at the cardholder's request while
a balance remains.

Since late or missed payments result in hefty late fees and
interest rate increases, a cardholder can quickly find her
balance owed exceeding the amount of her savings account. In
this case the bank will likely collect the money from the
account. The cardholder not only forfeits the funds their
account, but they may be left with significant additional debt.

Another thing to keep in mind before applying for a secured
credit card is that fees and interest charges are usually
higher than those associated with regular credit cards. All
of these details should be listed in the cardholder agreement
you sign when applying. Make sure to read the terms carefully.

Of course, even with its potential pitfalls the secured credit
card is still a great way for people with a poor credit history
to have access to a credit card they would otherwise not be able
to obtain.

Ed Lathrop is a successful real estate investor and a series 3 commodities futures broker.
He has extensive knowledge of the credit/mortgage markets.  He has built the financial
calculator Website, ezcalculator which is free to use and includes the calculator, "Pay Your
Credit Card Debt Quick."  Ezcalculator can be found at Mortgage Calculator or by going to
ezcalculator.com