Due to the economic downswing in the U.S. and world abroad, a consumer’s access to new credit has become more limited…

A poor credit or payment history can make it significantly more difficult to get an “unsecured card” at a reasonable interest rate. The average rates for unsecured cards hover at around 15%, so any late payments can make a balance balloon very quickly. Unsecured cards allow users to enjoy the same conveniences and fast payments that come with any other credit card. The main difference between a “secured” and “unsecured” card is that users make a deposit equal to the credit limit they want for the card.

For example, if you wanted a $300 limit, you would first have to make a security deposit of $300. With a secured card, a statement is delivered at the end of the month and paid just like a traditional card. The original security deposit will only be used, in case of non-payment.

- A few benefits of secured cards are that most will report transactions back to the 3 main credit bureaus. Using this card will help improve your payment history and credit score. Not all companies that issue secured cards, will report to the bureaus.

- If you are applying for a secured card in order to fix a bad credit history, you need to be sure that the transactions are reported back to the bureaus.

Fees of Secured Credit Cards

One negative to secured cards are the fees that can be charged for things ranging from monthly maintenance, to ATM withdrawls, and customer support. Secured card charges can be minor or very significant. The fees vary greatly from card to card. Most secured cards have minimum security deposits that range from $200 to $500. So, before a deposit is made, a card holder should learn how the fee system works.

Secured Cards Help You Build Credit

Secured cards are often used to improve credit history. Transactions can be reported back to Equifax, Transunion, and Experian. With consistant use and “on time” payment over time, a poor credit score can significantly improve. Not all secured cards report to the bureaus, so make sure your company offers this feature, BEFORE you make a deposit.

- Responsible use of a secured card, can help a user eventually qualify for an unsecured card (if that is what they want). The average amount of time it takes for a user to qualify for an unsecured card is around 1 year.

Qualification

Since secured cards present little risk to creditor (due to the security deposit), most applications are approved. Many secured card issuers accept over 95% or applications.

Difference between Prepaid and Unsecured Cards

There is alot of confusion about the difference between prepaid cards and secured cards. Secured cards require a security deposit, while prepaid cards DO NOT. This deposit is only used in the case of non-payment. A paper or electronic bill is sent at the end of the month with secured cards.

A prepaid card on the other hand deducts each transaction from your account. The user can be sure that they will not overspend, because the money is taken out of their checking account. Some prepaid cards do offer “cash advances” or overdrafts. But this feature is generally one that consumers should avoid because the interest charged will be significant. Prepaid (or reloadable cards) can be used as an “alternative” to a checking account. Money can be deposited and removed, but the fees will be high than any bank account.

Where Should You Get a Secured Card?

Many banks and major credit card companies offer their own secured cards. If your credit is poor, it is usually not a problem in an application for this type of card. A good secured card should have low fees, a low minimum deposit, and credit bureau reporting.

A good secured card would include:

1) Orchard Bank Secure MasterCard – which has a low interest rate and a $35 annual fee. It also reports transactions back to the 3 credit bureaus.

2) Wells Fargo Secured Card – The interest rate for this card is around 15%, which is about average compared to unsecured cards. The annual fee is also very low at $18/yr.

- After you receive your card, you should start by only making the minimum deposit. Doing this will allow you to get started, so you can make sure the fees are not a problem. The security desposit will be refunded if you do not like the card for any reason.