People are often encouraged to build their credit history or improve their credit scores by obtaining credit. Ironically, most lenders require excellent credit before they grant an approval. If your problem is that you have never had credit or you have a poor credit score, chances are your application will be declined. Do you have other options? Fortunately, yes!

Secured credit cards are made especially for people with problems with their credit score or for people who haven’t yet started building a credit history of their own. That’s right. Even with poor credit or even with no credit at all, you can still get approved if you apply for a secured credit card. Does this prospect interest you?

What is a secured credit card and how do they differ from regular good credit cards? As the name suggests, this type credit card requires a security deposit from the card holder. The credit card company uses your security deposit as collateral just encase you stop making timely payments they will simply use your deposit to pay the card off.

How much is the security deposit? The minimum amount required depends on your credit card issuer but typically, it ranges from $300 to $1,000. Your credit limit will often depend on the amount of money you deposited as security. Usually, your credit limit will be 50% or equal to the amount you deposited. There are some secured credit cards however that give a credit limit that is doubled your security deposit.

What about the interest rate? The interest rates on secured credit cards are expectedly higher than credit cards for good credit. Still, this doesn’t mean you should settle for unreasonably high rates. Do your research and you’ll surely find a secured credit card with reasonable rates and fees.
The most important thing to remember about secured credit cards is that they are supposed to be tools to help you build or improve your credit. This will only be possible if your secured credit card provider reports to the three major credit bureaus- Equifax, Transunion, and Experian. This particular service may not be provided by all secured credit cards so be sure to clarify this before you sign up for the card of your choice.

Lastly, how you improve your credit will depend on how you use your secured credit card. Charge only what you can afford to pay in full and always pay back your balances on or before your due date of payment. Use only a third of your credit limit. Make sure each of your purchase charged to your secured credit card brings you a step closer to good credit. After 6 months to a year of consistent payment, ask your secured credit card issuer for an upgrade to a standard credit card so you can enjoy lower interest rates. There is also the possibility that they will change your secured credit card into an unsecured credit card and your deposit returned to you.

About the Author
Melanie Mathis is a credit analyst and a writer for 8 years. She has been participating in the programs of NHBS, Inc such as their continuous effort in giving out Free Credit Repair and Building Ebook. NHBS also has a list of recommended bad credit credit cards.
Copyright 2008.