Rebuilding Credit with a Secured Credit Card

The credit market currently offers consumers with no or impaired credit a product called a secured credit card, which is different from a traditional credit card that basically gives the account holder an unsecured credit line, up to the account’s credit limit.

A secured credit card requires the consumer to deposit money into an account with the company issuing the secured credit card. The deposit is then used to determine the secured credit card’s credit line. It’s different from a pre-paid credit card, which depletes the card’s balance every time it is used to make a transaction.

If a consumer opens a $1000 secured credit card account, they will be issued a credit card they can use to make up to $1000 of purchases. At the end of the monthly billing cycle, they will receive a bill that requires them to make payments on the $1000 balance. Interest is charged on secured credit card balances, and typically, there is an annual fee.

Credit Cards for People with Bad Credit

A consumer with no credit or impaired credit is able to establish or rebuild his or her credit by making timely monthly payments on the secured credit card account.

In the event the consumer doesn’t make payments and the account is closed, the initial $1000 deposit is used to pay off any remaining balance on the account.

The annual fee a consumer incurs for opening a secured credit card account and the interest they pay for carrying a balance are additional expenses; however, considering the cost of no credit or impaired credit, they’re likely to be minimal over time.