My Experience with Secured Credit Cards

Secured credit cards are similar to regular credit cards, however they require a cash deposit and are primarily used to help borrowers build or rebuild their credit.  Your credit limit on your secured card is generally equal to the amount of the deposit you provided, ($200 deposit = $200 credit limit).  If you have a low credit score and are wanting to bump it up, this may be something to consider.  I used one to start rebuilding my credit and here is what I have learned.

Other then having a deposit, secured cards function identical to a normal credit card, meaning you can make purchases at most retailers and payments are due monthly. In general, secured credit cards have higher interest rates than unsecured cards. Some people might look at a secured credit card as a prepaid card however they truly are not the same.

As long as the secured card company reports to the three major credit bureaus, your activity with the new card appears on your credit report. Building creditworthiness with on-time payments will help improve your credit score. If you’re unable to make payments, the security cash deposit is then used to settle your debt.  Within a couple of months I noticed my score going up it helped to encourage me to keep my payments coming in and on time.  As well as keep my spending down.

Make sure that you read the fine print on the application, about fees and how to get your “refundable” deposit back.  I had a secured credit card.  I was under the impression I would receive my deposit back after the first year of making on time payments.  After about 15 months, I called the bank to inquire about it.  They said that you have to close the account to receive it back.  I didn’t quite understand why they would offer a secured credit card advertising to help build your credit, only to have the score go down after closing the account.  Thankfully I knew it would only affect my score by a small percentage.  I felt that getting my money back was more important to me.  I checked their website now it says the following:

The security deposit is refundable if you close your account and pay your balance in full. If your account is deemed eligible for unsecuring, we will return your security deposit to you as a statement credit

It’s funny how they didn’t seem to find my account to be deemed eligible.  However they did approve me a second unsecured credit card, within 6 months of having my secured credit card opened.  I suppose if I argued more with them, I may have been able to keep my card open. Along with getting my deposit back.  But no I decided to close it and I received my refund as a check in the mail a few weeks after the close of the next billing cycle.