Understanding Secure Credit Cards

Last week I was interviewed for a NY1 segment on secured credit cards, and I realized that a lot of people might not be aware of the conditions and responsibilities that come with opening a secured card, when they hear about it in the context of improving credit.
They are easy to qualify for, and they help establish a credit history that will ultimately help consumers get lower interest rates on their loans. What many people do not know is that they need to contact the issuer and request that their payment history is reported to the three major credit bureaus. Also, there are a lot of secured cards offered to consumers, and the competition among them should serve as a strong incentive to do your homework to find the best deal before signing an agreement.

Although secured cards work much like credit cards, you will be required to submit a substantial deposit, equal to 100-200% of your revolving credit line. It is usually $300-500, so initially the credit line on your card is very low. Depending on your agreement, your credit line might be extended either through additional deposits or because of good payment history. The agreement will also outline the fees and penalties you may be subject to, and it’s important to pay attention to these.

• Sign-up fee
• Monthly maintenance fee
• Annual membership fees range from $20-50
• Late payment fees
• Over limit fees
• Returned item charges
• High APRs, which vary from 10-20+%
• Charges on foreign purchases

Credit.com has a page on secured credit cards offered by major banks and can be a useful tool for comparing rates and fees: http://www.credit.com/products/credit_cards/secure.jsp
Generally, a priority in choosing a secured card should be a relatively low APR, in case you face unexpected hardship and cannot pay your balance off completely. I have seen many clients pay thousands of dollars in interest to credit card companies. Therefore, it might be worthwhile to pay an annual fee, but settle for a relatively low APR.

The biggest take-away here is that as a consumer, you have to be proactive about your personal finances. Be aware of the terms of your cards and always keep track of your expenses to build and maintain a good credit history, which will ultimately pay off when you apply for long-term car and home loans.