What You Need to Know Before You Apply for Secured Credit Cards

If you've been facing credit challenges and haven't been able to obtain credit, you may be getting ready to apply for secured credit cards. Before you do, you need to realize that not all secured cards are created equal. Here are some things to consider before submitting any secured credit card application...

The Deposit

When you apply for secured credit cards, make sure the cards you're applying for offer reasonable security deposit requirements and that they allot 100% of that deposit to your line of credit. There's no reason to provide a deposit of $500 if the card will only grant a credit line of $250.

You'll also want to make sure your deposit earns interest. You're going to be paying finance charges on any balance you don't pay off in full, so it's only fair that you earn interest on the deposit the bank is holding for you.

The Fees

Not all secured cards charge the same fees, and you need to know exactly what fees you'll be paying before you actually apply for secured credit cards.

An annual fee is acceptable, and may even be expected if you want to pay a low interest rate. Application and processing fees, however, are not. If a credit card company wants to charge you application and processing fees in addition to the annual fee, take your business elsewhere.

Also make sure the interest rate is reasonable. Even if your credit is shot, you're securing this card with a deposit. There's no reason to pay a rate of 20 percent or more in finance charges.

Who Will Know?

Some secured cards are really nothing more than prepaid credit cards, not reporting any of your account activity to the credit bureaus. If you're looking to apply for secured credit cards, it's because your credit needs improvement. That's not going to happen if your positive account activity isn't made available on your credit report.

Will It Evolve?

Another thing to consider when you apply for secured credit cards is whether or not those cards evolve as your credit improves. Some secured credit cards keep the same terms and conditions indefinitely. The best cards evolve into unsecured cards as your credit situation improves.

Remember, secured cards serve more than one purpose. They don't only serve as access to a credit card number when traditional cards aren't an option, they're also a way to improve your credit rating and rebuild your financial standing. Remember this and the above information before you apply for secured credit cards and decide which one is right for you.