Description

• Most credit cards involve revolving credit lines extended to consumers to use as they wish. Banks require no collateral for the cards, and, as a result, they limit these accounts to people with good credit ratings who are likely to repay their obligations. Some credit cards are secured with funds deposited into a special bank account by the applicant. The credit limit equals the deposit, which can be as low as $200 at some banks, according to MSN Money writer Liz Pulliam Weston. The secured card holder can make charges up to that credit limit and repay the balance in full every month or stretch out payments. Account activity gets reported to the credit bureaus.
  
  

Considerations

• Risk is just one factor used by banks to determine whether to issue secured credit card accounts. Card issuers want to make a profit from account use, which means collecting revenue from merchant fees when the card holder makes a purchase and interest charges if the balance is not paid off monthly. Consumers with secured cards tend to have low credit limits and use their accounts infrequently, according to Leslie McFadden of the Bankrate financial site, and those trends do not generate much profit. Many banks no longer provide secured cards because they are not money makers.
  
  

Pre-Approved Cards

• Banks sometimes offer pre-approved secured credit cards to consumers with troubled credit histories. Credit bureaus sell pre-screened information for targeted marketing. Card issuers are usually interested in lists of people with high credit scores, but some purchase data on people with low credit scores or recent bankruptcies, according to Fox Business writer Jeremy Simon. These banks send out pre-approved applications for secured accounts or sub-prime cards that carry high fees and high interest rates but that do not require a deposit.
  
  

Warning

• You should be wary of secured credit cards with unattractive terms, even if the banks that offer them are willing to approve your applications. Some charge you money just to apply, or some add monthly or annual fees just to keep your account open. Certain card issuers might not report your card use to the credit bureaus, which makes your account worthless for establishing credit. Ask about fees and reporting policies before accepting a card, Pat Curry of Bankrate advises.