Getting along without a credit card can be tough. Hotels and rental car companies often require them, and even restaurants and salons may request a credit card to book a reservation or appointment. If you have bad or no credit, getting a secured credit card can make your life easier and help you get your credit in better shape.
How They Work:
When you get a secured credit card, you are asked to place a certain amount of money into a savings account. This account serves as collateral for your card. Your credit limit will be all, part, or–in some cases–more than the balance in this account. If you use your credit card responsibly, your credit card company may increase your credit limit without requiring additional deposits into your account.
Why Get One?:
If you have no credit or bad credit, a secured credit card can help you build, or rebuild, your credit history. Plus, if you’ve had difficulty managing money in the past, the collateral savings account can help prevent your digging another financial hole for yourself.
The Federal Trade Commission warns consumers that some companies offering secured credit cards are not legitimate. These companies simply charge you high fees and never provide you with a card. Even worse are the companies that don’t report your payment history to a credit bureau, making the card useless for establishing a good credit history.