As banks and credit card companies continue to reduce credit lines and close credit card accounts, consumers are looking for alternatives.  One such tool can be a Secured Credit Card.

A secured credit card requires you to open and maintain a savings account as security for your line of credit. The amount required for a secured card typically starts at $300 to $500.  Some banks and credit unions will pay interest on your deposit comparable to what you would be getting if you opened a regular savings account.  There may be application and processing fees. Typically, a secured card requires an annual fee and has a higher interest rate than an unsecured card. 

Questions to ask when applying for a secured credit card:

What are the total fees (application, monthly and annually) and will they be refunded if you are denied a card?

What is the minimum amount you need to deposit to obtain the card?

How much interest will the deposit earn, and what kind of account does the deposit have to be in?

How long does the money have to stay on deposit after the account is closed?  (Some banks will want to keep the deposit for a couple of billing cycles to cover any stray charges that arrive.)

How long does it take to qualify for an unsecured card? (Most banks will qualify you for an unsecured card after a period of making all your payments on time.)

Do you report to all three credit bureaus?  This is extremely important when using the credit card as a tool to build or re-establish your credit record.  If your card issuer does not report to a bureau, the card will not help you build a credit history. 

REMEMBER:  THIS IS A TOOL TO BUILD YOUR CREDIT RATING.  THIS IS NOT AN ACCOUNT TO CARRY BALANCES ON.   

After receiving your new card, use it once for a small purchase ($25-50).  PAY THE ENTIRE BILL AS SOON AS IT ARRIVES!!   Do not use the card again.  Put it away in a safe, secure place and use it once every three months in the same manner.   This will keep it active and save you money on interest charges. 

 It will show up on your credit report as a revolving credit card account.  It takes six months and a day for a new credit account to be included in your scores.

A secured credit card with a national company that reports to all three credit bureaus is a great way to build your credit rating.  With the tightening of the credit markets, it can also be an alternative way to have credit available for your business or personal needs.