What is a secured credit card?
A secured card is typically a Visa or Mastercard that is issued based on a security deposit that you make before the card company will grant you the credit line. Usually you will need to make a deposit in the same amount as the credit line you wish to have available on the credit card. In this sense, it works very much like a debit card, since you have to already have the money set aside to make charges on the card.
There is one very important difference between the secured card and a debit card, and that difference is how the credit bureaus view the secured card. Debit cards do not report your activity to the credit bureaus, so your debit card use is not a factor in your credit score.
These cards provide positive credit lines to help offset older negative accounts on your reports.
Why do secured cards help boost your credit score?
Secured cards appear to the credit bureaus like any other revolving line of credit. So if you deposit $500 into your secured card account, then you will see a $500 credit limit on the account reported to the credit bureau.
Do you need a secured card?
I highly recommend a secured card for anyone that has very bad credit and currently does not have any Visa or Mastercard credit lines. Especially, for anyone that has been turned down for one or more unsecured card offers recently. These cards are not for people that already have an unsecured card. If your credit is good enough to get an unsecured card then you can skip the secured card and work on your credit with other methods.
The fact is, having several revolving lines of credit on your credit reports is going to allow you to raise your credit score as fast as possible. I know it seems peculiar that going out and getting credit cards will improve your score… but this is how the game is played. You have to show responsible use of credit to build a high credit score.
What should you look for in a secured card?
There are quite a few options for secured cards that are not a good choice for consumers. Many have very high application fees and some even have monthly service charges just to maintain the account. There are 3 things that you should look for in a secured card: