All you need to know about a secured credit card

A secured credit card acts like a regular credit card but where a regular credit card is unsecured a secured card is secured by a cash deposit.  A secured card will be accepted in the same places as an unsecured card, including ordering on the internet and using ATMs.

The borrower’s credit limit is set by the amount that he has allowed to be secured on his credit card.  Deposits are usually a cashiers check, certified check or money order.

A secured credit card holder has to agree to deposit a certain amount in a bank account, usually interest bearing, and agree that if there is a default then the provider can take the money.  Most of the time the credit limit is set to the amount in the account at first but it can later be increased above the deposit if the borrower behaves well.

Secured cards are more likely to be issued to people with a bad credit rating than regular, unsecured credit cards, as it is easier for the issuer to get their money back.  Some secured credit card providers will guarantee acceptance. If the borrower defaults on a secured credit cards then the credit card provider can simply take the funds offered as security, and not worry about the claims of other lenders.

Secured credit cards are often recommended as the best and fastest way to rebuild a poor credit rating or establish a credit rating.  This is because it is treated as credit to the credit rating agencies, so when the monthly statement is paid off there is a demonstration that debt can be repaid on a regular basis.  Unlike prepaid cards the amounts are not automatically deducted and it is the responsibility of the borrower to pay the minimum amounts.