Trying to rebuild your credit? Investing in a secured credit card could help you quickly bring your credit score up. However, unlike a standard credit card, these cards typically require a refundable security deposit to grant you a credit line. Many also have annual fees and higher-than-average interest rates. You can shop around to find the most attractive rates and terms, and you’ll need to protect yourself from predatory offers.
1. Review annual fees. Every secured credit card issuer will have its own annual fee requirements. These typically range from $29 to $39 or more, depending on the card and the interest rates. You might find that cards with a lower interest rate and low deposit requirements have a higher annual fee, while those with lower annual fees have higher interest rates and higher-than-average security deposit requirements.
2. Determine credit line qualifications. Some secured credit card issuers give cardholders the benefit of qualifying for a credit line increase without requiring additional funds for a security deposit. If you think you are going to be using the credit card to rebuild your credit for more than a year, consider investing in a card that offers this benefit. You’ll need to make payments consistently and keep your account in good standing in order to receive such a benefit, but your diligence will pay off.
3. Check in with a credit union. Many credit unions offer secured credit cards to their members and might even be able to waive annual fees and application fees. You’ll find that most of the secured credit cards issued by credit unions also offer lower interest rates, a higher level of customer service, and more options for rebuilding your credit after bankruptcy, divorce, illness, and other life situations that have affected your finances. Set up an appointment with your credit union to find out what options you have and what types of secured credit card offers are available.
4. Monitor credit-card comparison websites. A number of websites provide extensive reviews of secured credit cards and current rates. Take the time to wade through these credit-card comparison sites, which can help you analyze the pros and cons of each credit card program. This is a great way to get a bird’s eye view of some of the latest offers and programs available before you start researching the terms of individual cards on your own.
5. Don’t look only at deposit requirements. When you’re looking for the most affordable secured credit card you can invest in, you will probably look to the deposit requirements to make sure you can actually afford to pick up that card. However, remember the initial deposit requirement is only part of the deal. You will also be responsible for paying annual fees, interest charges on any balances you bring forward each month, an application fee, and other contract fees. Make sure you’re calculating all of these costs when comparing cards and terms. The actual investment you end up making over the course of the year could be much higher than the deposit, so be prepared to budget for those costs as you carry and use the secured credit card.
6. Watch out for scams. Not all secured credit card issuers are legitimate lenders, and you might come across some scams when doing an online search. Do your research to determine whether a credit card program or issuer is legitimate by looking for online reviews or other information about the card from multiple sources.
7. Read the fine print carefully. Once you’ve selected a few secured credit cards that offer a promising program, take some time to review the fine print. You want to have a thorough understanding of the annual fee, variable or fixed interest rates, security deposit requirements, credit line options, and other fees imposed on cardholders over the course of the contract. Remember you can always call the customer service department with any questions you have about the terms or to clarify anything listed in the agreement.
For objective secured credit-card reviews and more articles by award-winning columnist Sabah Karimi, check out consumer review site Wise Bread.