Secured credit cards: the good and the bad

Secured credit cards can be good

If you can’t get a regular card because of bad credit, all hope is not lost. A secured credit card is different because it uses funds that a consumer has deposited in a savings account. The secured card is protected by the savings account. Therefore, the consumer is “borrowing” from his own account. In this way, the consumer can restore his credit payment history thus showing a better creditworthiness. Some secured cards even come with a conversion feature that allows for an upgrade to an unsecured credit card after a successful payment history of a predetermined period of time.

Credit cards in general can be exceptionally beneficial to the consumer. Secured cards provide the same benefits. But in addition, a secured card offers the consumer with less than good credit the opportunity to build a credit history, which is 35% of a consumer’s credit score.

You can get a list of financial institutions that offer secured cards by sending a $4 check or money order to:

List of Secured Credit Cards BHA Customer Service

524 Branch Drive

Salem, VA 24153

There is also a free list online from Bankrate.com or you can find a list of financial institutions that offer secured credit cards using your favorite search engine simply by searching the keywords “secured credit card.” Keep in mind that different companies offer different terms, with rates and fees that vary widely. Obviously, some companies are better than others. Some just want to charge you fees, while others provide a fair service. (See below for potential issues with some companies.)

My best recommendation is to check with the larger banks and especially your local credit unions and ask if they offer a secured card program. You can also ask them if and how often they report to all 3 credit bureaus, since one of their main concerns is rebuilding credit. Also check if they offer a conversion to an unsecured card and after what period of time.

Secured cards can be bad

Many years ago I wrote an article saying that credit and credit cards are the agony and ecstasy of life. I haven’t changed my mind. Like all credit cards, a secured credit card can make the impossible possible. But it can also land the unsuspecting consumer in the dirt or, worse yet, in Bankruptcy Court. Fortunately, a secured credit card won’t let you spend more than the amount of your savings. However, if you don’t make your payments on time, you may find yourself not only without access to your protected account, but also without future use of any protected card from any source.

When selecting a secured card, beware of excessive setup and administrative fees, as well as high interest rates. There should be no application fee or “insurance costs” unless you feel insurance is necessary. There may be an annual fee, but compare interest rates and annual fee costs.

The Federal Trade Commission (FTC) offers the following warnings. Be on the lookout for: Easy credit offers. No one can guarantee you will get credit. Before deciding whether to give you credit, legitimate providers review your credit report.

A call to a “900” number for a credit card. Pay for calls with the “900” prefix. You may never receive a card.

Credit cards offered by “credit repair” companies or “credit clinics.” These businesses may also offer to clean up your credit history for a fee. [Most consumer advocates recommend against these clinics.]

Of particular interest are callers offering secured credit cards, as well as secured and unsecured offshore credit cards. There are some very good offshore unsecured creditors, but most secured or unsecured offshore release marketers are more than likely scammers.

Report suspected credit fraud and scams to the National Fraud Information Center (NFIC), a project of the National Consumers League. They are available at 800-876-7060, 9 am to 5:30 pm EST, Monday through Friday. NFIC is a non-profit organization that operates a consumer hotline to provide services and assistance in filing complaints. NFIC helps the FTC and state officials by entering complaints into a computerized database to help track and identify fraud operators.