A secured credit card helps you to restore damaged credit by giving you a credit limit equal to an amount you deposit. More recently partially secured credit cards have been introduced as a step up from secured cards, but still lacking the complete freedom of regular cards, or unsecured credit cards.
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These cards are an excellent way to build credit provided you always pay your credit balance off each month. They have recently become more popular due to the current state of the economy.
How does a partially secured credit card differ from a secured card?
While secured credit cards give you a line of credit equal to an amount you deposit or just slightly higher, a partially secured card usually works on a 50-50 basis for individuals with mediocre credit ratings. You make a deposit and your bank gives you a credit line equal to double the amount of this deposit.
For example, if you deposit $500 you will be given a credit line of $1000. With these types of cards, the bank has the added security of knowing they can use your deposit if you fail to make your monthly payment. Many individuals that have damaged their credit through high debts or defaulting on balances can get a secured or partially secured card when they cannot get a regular credit card.
How does a partially secured credit card help you to re-establish credit?
Consumer Reports reported in December 2011 that a secured or partially secured credit card is one of the best ways there is to rebuild credit. If you are able to keep your balance low and try to pay off that balance on time each month, you will be able to improve your credit score. After about 12-18 months, you should be able to qualify for a regular credit card or be able to upgrade to one from the same bank. You may qualify again for other types of loans with your improved credit. Consumer Reports does caution consumers to do their research on different cards and make sure they find one without hidden fees and one that reports to all three major credit bureaus.
Is it possible to be turned down for a secured or partially secured credit card?
It is still possible with a secured credit card to be turned down. Different banks have different policies, but many will not give a secured card to anyone who has declared bankruptcy or been highly delinquent on their recent debt. Most of these cards also require you to have a checking account.
The 2011 fall edition of Consumer Action magazine states that some banks also have minimum income requirements or set periods of time with no late payments in order to qualify for one of these cards. Consumer Action also reports that most banks require a minimum $200-$500 deposit in order to open a card so this money must be available.
Are there down sides to partially secured credit cards?
As with any credit card, there are some potential drawbacks to partially secured credit cards. These cards often have high interest rates and many fees that add up to a lot over time. Fully secured credit cards often have lower rates and fees. If you have difficulty living within your means, a partially secured credit card can still get you into debt trouble. The main purpose of these cards should be to make only small purchases to build credit and pay off your credit card every month in a timely fashion. If you are unable to do this, you will not only fail to restore your credit, but you could harm it further.
How do you find and apply for a partially secured credit card?
Although some banks have recently done away with the partially secured option for their credit cards, several banks still offer these cards. You are best to do some online research and find a bank that is well-known with a good reputation that offers a card with low fees. Search for independent consumer opinions on these cards and read all of the fine print. Always remember that something, which seems too good to be true, usually is.
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