What is a secured credit card?

Though it may sound a little funny at first, a secured card is really a very straightforward product.  Secured credit cards require collateral for approval.  With secured credit cards, a security deposit is needed to secure the credit card.  The amount of the security deposit usually equals the credit limit for that particular credit card.  Technically speaking, a secured credit card isn’t really a credit card because you the money you are securing is really your own.  It walks like a duck and acts like a duck, it must be a duck, is the idea here.  A secured credit card nearly eliminates the risk for the credit card company because you secure all your purchases before you make them.  A better name for this card would be a pre-paid purchase credit card.  It works much like pre-paid phone cards.  You pay the money up front, say $500.00.  Then you can use that amount up however you like.  When you get near the end of your funds, the credit card company usually alerts you and then you can pay in more. Generally, secured credit cards are for people with no credit or poor credit who are trying to build or rebuild credit history.

This is a good, low-risk way to build your credit mainly because you cannot spend more money than you have in your card’s account and get into a large pile of credit card debt.  So if you have a secured credit card in the amount of $500.00 and you go out and try to buy something with it that costs $1000.00, you will not be able to do it.  This is also not a bad thing if your credit card is stolen as it limits the amount of stolen goods to your credit limit and no more.  When you use your secured credit card, it works exactly the same as any other card and no one will know if it’s secured or not.  Not the vendor and not the hot date your trying to impress with a nice dinner out.