Definition
A secured credit card is a tool for buying goods and services in which the cardholder may carryover a portion of the balance to be repaid in future months. It works similarly to a regular unsecured credit card, except that the cardholder must deliver a security deposit that covers all or part of the available credit on the account as a condition of credit.
Analysis
A secured credit card is one method that a person with blemished credit may try to rebuild their credit rating. Secured cards often carry heavy fees, so it is important to shop around for the best deals.
Most secured cards require a deposit equal to the total credit granted on the account. Some may accept a portion of the credit limit as collateral.
Interest rates tend to be high, but comparable to other credit card products offered to subprime borrowers. Annual fees of up to $59 are common.
Secured credit cards can be an expensive way to rebuild credit. You can greatly reduce the cost by paying off the balance each month so that finance charges are not incurred. Make sure that a card is selected that reports to all 3 major credit bureaus if rebuilding your credit is the main purpose for opening the account.
If you are not concerned with building credit, but simply need a charge card for purchases that require a credit card, then consider prepaid cards as an alternative to secured credit cards.
