Published on December 10th, 2013 | by William Charles1
How Do Secured Credit Cards Work?
I have really bad credit history with a lot of late payments. I’m making all of my payments on time now and I’m in a much better financial situation, but I can’t seem to be approved for a credit card. I heard people with bad credit will be approved for a secured credit card, is this true? How does it work? I’m just sicking of buying prepaid credit cards whenever I need to buy something online. – Trevor, Detroit
Hi Trevor, thanks for the question and glad to hear you’re doing better financially. Secured credit cards require you as a customer to put a cash security deposit down, this is locked and cannot be accessed until you either cancel the card or the card company decides to upgrade you to a non secured card (usually happens after the first year or eighteen months if your payments have been on time).
For example, if you put down a deposit of $1,000 you’ll now have a credit card with a limit of $1,000. This is not the same as a prepaid card, as you’ll still need to make regular monthly payments on your secured card.
You should always look for a card with a low annual fee. You should also make sure you don’t make purchases on the card unless you have the funds to pay for them, as not paying your secured card will further negatively affect your credit.
If you plan to make regular purchases on your secured card, it might be worth looking at one with a rewards program. For example, the Harley Davidson card from U.S bank or Navy Federal nRewards secured card.
[Read: Best secured credit cards]