Here is what you need to know about secured credit cards:

• The credit limit on a secured credit card is equal to the deposit you put on the card. In other words, if you want a secured credit card with a $500 credit limit, you will need to supply the credit card company with a deposit of $500.
• Secured credit cards are available through a number of banks and issuers, and finding a secured credit card is as simple as searching the Internet. Many credit unions also offer secured credit cards, so it may be worthwhile to check with your local credit union.
• Secured credit cards are not created equal. Like traditional credit cards, there are good secured credit cards and not-so-good secured credit cards, so it pays to do your research before choosing a secured credit card. In other words, read the fine print and ask plenty of questions so you fully understand the card’s terms and conditions before applying.
• Secured credit cards are ideal for individuals with no credit or bad credit because they often report your monthly payments to the credit reporting agencies. In fact, secured credit cards may be the best way to rebuild or build your credit. Ask the credit card company about their credit reporting agency reporting procedures, as some companies report more regularly than others.
• Secured credit cards are a great way to make the transition to traditional credit cards. Many secured credit issuers will allow you to convert your secured credit card into an unsecured credit card once you have shown regular payments for a set period (usually six months to a year). Or, you may be able to reduce the amount of your deposit in relation to your credit limit after you have a number of months of payments under your belt.

The two, main factors to consider when shopping for a credit card include: identifying and understanding your personal spending habits and your financial history, as they will likely determine which type of credit card is right for you.

Here are our recommendations for choosing a credit card that’s a good match for you:

• Low credit score – If you have a credit score below 650, you will likely want to take the time to build up your credit score before applying for a major credit card. If you apply for a major credit card with a low credit score you will either not be approved or you will end up with a fairly high interest rate. With that said, the best bet for improving your credit score is to apply for a department store or gas credit card. Apply at a retailer you frequent as to take advantage of coupons and special deals for cardholders, but remember to pay it off each month as to establish a strong credit history and to avoid paying interest.
• Really low credit score – If your credit score is in the tank because of major credit indiscretions in the past, it is best to start with a secured credit card. A secured credit card is essentially a credit card that requires a down payment for collateral. After making regular payments for a set period of time (usually a year), you can likely then transfer to an unsecured credit card.
• Paying off debt – If you want to consolidate debt and pay it off, you are likely best suited for a credit card that offers a zero-percent introductory offer and an attractive balance transfer option.
• Frequent spender – If you use your credit card frequently throughout month, but also pay off the balance each month, you will likely benefit from the perks of a rewards credit card. Take advantage of the rewards offered by the credit card, but make sure to pay off your balance each month as to not negate any rewards benefits.

However, it is important to remember that all secured credit cards are not created equal, and that it is important to take the same precautions applying for a secured credit card as you would an unsecured credit card. Here are other important facts you should know about secured credit cards:

• Not all secured credit card companies will report your credit activity to the credit reporting agencies. Make sure, when applying for a secured credit card, that you choose one that will report your credit activity to the credit bureaus. Otherwise, don’t waste your time. You will often find this language in the credit card’s terms and conditions, but it is also important to call and verify this information with someone from the credit card company before accepting the credit card.
• Just like unsecured credit cards, it is very important to read the fine print on a secured credit card. Some secured credit cards come with super-high fees, such as activation fees, credit increase fees, monthly maintenance fees, balance inquiry fees and ATM fees, so take the time to look over the terms and conditions for a few secured credit cards to ensure that you are paying as few fees as possible.
• Don’t forget to look at the interest rates on secured credit cards. Once you have examined the fees associated with a few secured credit cards (and eliminated a few), you will want to pay close attention to the APR. Although you may receive zero-percent introductory rates, you will soon find that the credit card’s default rate once the promotional rate has ended is much, much more.
• Don’t expect to be approved for every secured credit card for which you apply. Some banks are quite particular, even when it comes to secured credit cards. For example, some banks won’t approve individuals who recently filed bankruptcy.

There are certain things you should do and certain things you shouldn’t do, however, when it comes to making the right moves regarding your credit:

• As soon as your bankruptcy is discharged, apply for at least two credit cards. It is important to understand that you will likely qualify for traditional, unsecured credit, so you may have to first start with a couple secured credit cards. Secured credit cards, while they act the same regarding the rebuilding of your credit, are different because they require a cash deposit equal to your credit limit. Just like a typical credit card, you will be expected to pay the bill each month; if you fail to do this, the credit card company can then use your cash deposit to pay the bill and close your account. Your payment history with your secured credit cards will be vital when it comes to reestablishing your credit, so take these seriously.
• After about 12 to 18 months of making regular payments on your secured credit cards you can then attempt to apply for an unsecured credit card. At this time, you will have likely established a good credit history using your secured credit cards. Avoid opening too many new credit card accounts at once, though, as this could lower your credit score.
• Avoid closing any credit card accounts, regardless of whether you spend on them or not, as a good portion of your credit score is made up of your available credit. The more credit accounts you have open, the higher your available credit.
• Make purchases on your credit cards each month, but also make a point to pay them off in full when the bill comes. Adopting this responsible habit will allow you to enjoy the benefits of good credit without becoming overwhelmed with credit card debt.

Secured credit cards, however, are not fully understood and have not garnered a lot of attention in terms of their advantages. There are a number of circumstances that apply only to secured credit cards, so it is important to understand them before applying for a secured credit card.

The following set of questions will help you decide if your next secured credit card is best for you:

• Are secured credit cards tracked on my credit report? Absolutely! Because of this, secured credit cards are a great way to begin building (or rebuilding) your credit. Many secured credit cards will provide monthly reports to the major credit reporting agencies, thereby helping you repair your damaged credit in a shorter amount of time. However, some credit card companies report only yearly. Before applying for a secured credit card, ask the creditor how often they report to the credit reporting agencies.
• How much money will I need to deposit? Because secured credit cards work like a debit card, you can only spend what you have deposited. Therefore, if you want a credit limit of $500, you will need to deposit $500. This money, however, will not be used to pay your credit card; unless, of course, you fail to pay it yourself. Instead, it will be kept in an interest-bearing account.
• How much of a return can I expect on my deposit? Most secured credit card companies offer about the same return as you would get on a savings account. However, there are some creditors that will offer greater returns. It is up to you to find them!
• Will my spending limit ever increase? If you have established a history of making timely payments, chances are the credit card company will reward you with an increase in your spending limit. Your responsible credit card behavior will allow you begin spending above your deposit amount.

As it stands, there are more than 70 million Americans with credit scores low enough to qualify them as subprime borrowers. Because of this, many of these Americans will turn to subprime credit cards, also known as secured credit cards.

The Basics of Secured Credit Cards

Secured credit cards often come with very low limits and strict regulations regarding their use. For example, a secured credit card requires that the cardholder “secure” the card with cash. The cash that is secured for the card equals the card’s credit limit, thereby allowing the credit card company to cover the card’s credit limit in the event that the customer does not pay the bill. If the customer pays the bill, however, the cash is kept in a secure account and not used.

Subprime Credit Card Restrictions

There are some restrictions on secured credit cards as a result of the new federal credit card legislation, including placing a cap on the amount of fees that the credit card company can charge the cardholder in the first year (25 percent), but for the most part credit card issuers can continue to charge surprisingly high interest rates and fees.

Subprime Credit Cards still a Smart Financial Move

Even with the high interest rates and fees imposed by creditors, secured credit cards are still a smart move for individuals looking to improve their credit score. A recent study conducted by TransUnion and commissioned by Citizens for Equal Access to Credit followed 365,000 subprime borrowers over a two-year period and found that subprime credit cards were successful in helping consumers rebuild their credit.

In fact, during the study’s two-year period, 37 percent of subprime borrowers saw an increase in their credit score by using subprime credit cards. About one in five subprime cardholders saw an increase of more than 40 points to their credit score, which took many of them to near-prime, prime or even above-prime credit scores.

However, given the state of the economy and the state of many consumers’ credit scores, secured credit cards are making a comeback, and for plenty of good reasons.

If you are new to the credit card game, or if you’re looking for an easy way to begin rebuilding your bruised credit history then you may want to consider a secured credit card.

A secured credit card account requires that the account user open a savings account, of sorts, where the creditor will hold the funds that will act as collateral on the card. This money is the creditor’s insurance policy, although if you loyally pay your bills on time the money will remain there, unused.

Why Secured Credits are Useful in Today’s Economy:

• They provide you with a credit card – Credit cards are convenient and practical, and are often the desired payment method for things such as airline travel and online purchases. A secured credit card acts in the same fashion as a traditional credit card, thereby enabling consumers to charge their purchases – not to exceed their credit limit, of course – and repay them each month.
• They provide you with a payment history – One of the best ways to begin building or rebuilding your credit is to simply begin establishing a payment history. In that sense, a secured credit card works just like a traditional credit card, thereby enabling consumers to begin boosting their credit score.
• They provide you with an interest-bearing savings account – Once you have developed a proven track record of timely payments, many secured credit card companies can begin paying you interest on your secured funds. For many consumers on a budget, this is a great way to build their credit and keep money tucked away in a savings account at the same time.

You can begin rebuilding your credit rating almost immediately after you file for bankruptcy, provided you have recognized your credit mistakes in the past and have learned from them. A good place to start is consumer credit counseling classes. These classes can help you properly manage your monthly finances and budget, and can also teach you ways in which you can responsibly handle your debts and rebuild your credit rating.

Secured Credit Cards

A great first step is to apply for a secured credit card. A secured credit card essentially means that you send the credit card company a certain amount of money that they hold in a separate account. The amount you send generally matches your credit limit. For example, if you have a credit card with a $500 credit limit you would have to send the credit card company $500 to secure the card.

If you pay the bill on time, your $500 remains in your account. If, however, you fail to pay the credit card bill, the credit card company simply takes the money out of your account to settle the debt. The credit card company will then likely cancel your account, so it is well worth your time to remain responsible when dealing with a secured credit card.

It is also important to remember that a secured credit card can affect your credit rating, so always pay your balance in full every month so that you can begin rebuilding your credit rating.

Unsecured Credit Cards

Another option may be a credit card with a low credit limit. Many people can successfully get credit cards while still in bankruptcy, but it is important to remember that these cards often come with high fees and equally high interest rates. In other words, pay off your balance in full each month to avoid paying astronomical interest rates and to begin building a positive credit history.

A bankruptcy is certainly going to blemish your credit score, but you can begin working toward a brighter credit future if you act now!

For those of us who are struggling with our credit worthiness, secured credit cards may be the answer. It is important, however, to educate ourselves on both the advantages and disadvantages of secured credit cards before applying for one.

How Secured Credit Cards Work

A secured credit card is essentially a credit card with a security deposit. The credit card works in a similar manner to a traditional credit card; however, the credit card holder must first deposit money into a special account that is equal to 50 to 150 percent of the card’s credit limit.

The credit card holder then uses the credit card as he or she would any standard credit card, and pays the bill in a similar fashion. The only difference is that the creditor has a cash reserve to pay the credit card should the cardholder default.

As the cardholder continues to pay the card every month and make responsible purchases, the creditor may raise his or her credit limit. For cardholders seeking a higher credit limit, the creditor simply requests a larger security deposit.

Establish and Spruce up your Credit Rating

For those consumers with little or no credit, or for those with a poor credit history, a secured credit card may be the ideal solution for rebuilding credit. A secured credit card provides consumers with the opportunity to show creditors that they are working towards a more financially sound future.

A secured credit card enables anyone of legal age to establish a credit history; therefore, they are ideal for young adults who have no credit history. Others who may find secured credit cards to be useful are those in bankruptcy or those who have had their bankruptcy recently discharged.

Establishing a credit history with a secured credit card may very well be a responsible step towards a better financial position.

Disadvantages to Secured Credit Cards

While there are few disadvantages, it is important to remember that secured credit cards typically carry a high interest rate, although for many consumers with poor or no credit, this is often an accepted trade-off.