How to Analyze Secured Credit Cards

Secured credit cards are a great tool if you are looking to build a positive credit history. They are usually advised for people with no credit history or for those who have had poor credit in the past. However, you should be careful and research your options before you make a decision to take on a secured credit card when one is offered to you.

Some secured cards will have a launch fee and a reload charge, and they could also have a bill every month or a transaction fee for every purchase. This is because the credit card company needs a way to make money off of the cardholder. The fine print for these contracts should always be read thoroughly to avoid problems between the cardholder and the company later.

Take time to compare many different options before choosing the right one for you and your credit. As you analyze your secured credit card options, take all of the following factors into account.

Eligibility requirements – E very company offering secured credit cards will have specific secured credit eligibility requirements. Some examples of possible requirements are age requirements, income requirements, and/or having an active checking or savings account with the company.

Secured card costs – Study all underlying costs of a secured credit card before you apply. Look for annual fees, application fees, and processing fees. Do not apply for a card when these fees are higher than your other options.

Deposit requirement – If you should happen to default on a payment for your secured credit card, that amount would be withdrawn from the deposit you make when you open the account. Check to see if the companies you are considering will withdraw from your deposit on your first late payment or if they will wait a few months before they make a withdrawal. If they will wait, compare the time they are willing to wait for your payment with the time other companies will be willing to wait.

Credit limit amount – Some companies will make your credit limit equal the amount you initially deposit into the secure credit account. Other companies may only allow a credit limit that is equal to a certain percentage of your deposit. Try to find a company with the best terms on this matter (the best being equal to your total deposit amount).

Annual Percentage Rate (APR) – Carrying a balance on your card past the grace period the company allows will cause an annual percentage rate to be charged on your account. When considering this finance charge, know that a lower APR will mean the amount of the charge will be low as well.

Unsecured credit card conversion – If you can prove for a specific period of time that you are able to continually make your secured credit card payments on time, some companies will give you the possibility of converting your secured card into a regular credit card. This conversion will allow you to have lower interest rates and fees, but the new card could also come with other restrictions. Make sure you know exactly what would happen to you, your money, and your credit should you convert your card.

Reports to the credit bureau – In order to build a good credit history, you will need to make sure your payments will be reported to all three major credit bureaus. If the payments on your secured credit card will not be reported, your credit score will see no effect, and you should therefore look for a secured card elsewhere.

In the process of making this very important decision, keep these details in mind. Decide on the right card for you. If you make the right decisions with your finances, your credit score will definitely see an improvement.