If your financial situation may have taken a serious hit as a result of a foreclosure, having an account sent to collections or charged off, filing for bankruptcy, or some other type of serious financial scenario, a regular (or unsecured) credit card may be out of reach. Secured cards are a tried and true way for folks with average or poor credit history to rebuild their credit.

Without a credit card, it’s difficult to purchase products or services online, and it’s also problematic trying to make car, hotel, or airline reservations. If you use a debit card, some companies will require a significant security deposit – and you might not have that much “spare” money just lying around to use for deposits.

One alternative is a secured credit card, which requires a deposit that will typically be equal to the balance on your card. For example, some cards require a low deposit, and if you deposit $200, you will have a $200 balance on your secured credit card. If you deposit $500, you will have a $500 balance. However, some cards will allow you to have a higher balance than your security deposit.

These are some tips and tricks to help you maximize your secured card.

Check out the rates

Always shop around and compare secured cards to get the best deal. For example, at the time of publication, these were some of the secured cards being offered:

  • The Capital One Secured MasterCard has a 24.99% variable APR and no annual fee.
  • The First Progress Platinum Select MasterCard Secured Card has a 14.99% variable APR and an annual fee of $39.
  • The Primor Secured Visa Classic Card has a 13.99% APR and a $39 annual fee.
  • The Open Sky Secured Visa Credit Card has an 18.39% variable APR, and a $35 annual fee.

At first glance, a card with no annual fee might look like the best option. However, that’s not always the case.  Your best bet might be to choose a card with a lower APR, which is the annual percentage rate. (A “variable” rate means that it can go up or down.)

Using Credit Karma’s debt repayment calculator,  this is how much you could end up paying on a card with a $500 balance:

  • With a 24.99% interest rate, paying $30 a month, you would pay $121 in interest and pay off the total amount in 21 months.
  • With a 18.39% interest rate, paying $30 a month, you would pay $82 in interest and pay off the total amount in 20 months.
  • With a 13.99% interest rate, paying $30 a month, you would pay $59 in interest to pay off the total amount in 19 months.

Factor in Fees

In addition to interest rates and annual fees, compare other fees as well. For example, some companies charge an application fee, a processing fee, and ATM fees every time you withdraw money. These fees can add up, so try to choose a card that charges the least number of fees.

Consider the Reward Factor

As a reward for making consistent payments, some companies will increase your credit limit without requiring an additional deposit.   

Aim for an Unsecured Card

Your credit score is based on a variety of factors, including your bill payment history. With an unsecured card, you are able to demonstrate that you pay your monthly card payment on time on a consistent basis. You also demonstrate that you won’t go over your credit card limit.  This information is reported to the credit bureaus (Experian, TransUnion, and Equifax) and goes on your credit report, thereby helping to increase your credit rating.

However, a secured card doesn’t necessarily demonstrate a significant level of financial responsibility because you can’t go over your spending limit. It should be noted that after a few months, some companies will move you from a secured to an unsecured card. But, if you don’t select (or you don’t qualify for) that type of plan, you’ll need to take the initiative to obtain an unsecured card when you have established a consistent payment history.

You should also be able to obtain an unsecured card with better terms (no deposit, lower APR, etc.), so those are additional reasons to upgrade.

Avoid Scams

Unfortunately, the world of full of scammers trying to trick people out of their money by any means necessary. These con artists will use every tool at their disposal, and some scammers have found success pretending to be legitimate credit card providers calling, emailing, or even texting about problems with your card.

These schemes are designed to get your card information. Even though you have a secured card, it functions the same way as a credit card, and if scammers gain your card information, they can wipe out your balance.

Whenever you receive a phone call, text, or email regarding your secured credit card, don’t respond to those messages. Instead call your credit card company using the phone number on the back of your credit card.

When shopping for a secured card, you should also be aware of deceptive marketing techniques. The Federal Trade Commission (FTC) warns that some companies may advertise secured and also unsecured credit cards on TV, online, and in newspapers. These ads might imply that you can call the number listed to obtain a free card. However, if it’s a “900” number, it’s not toll-free, so you would be charged for the call.

According to the FTC, these charges could range from $2 to $50. Compounding this issue, it might turn out that you’re not qualified for these offers because the ad left out crucial information in an attempt to lure you to call. For example, the ad won’t explain that there are fees for the application and for processing it – in addition to a security deposit. In addition, the ads don’t mention that income is a determining factor and don’t disclose the annual fee.

A secured card can be the first step in rebuilding your credit history, but only if you use wisdom and caution.

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