Secured credit cards: How they work, dangers to avoid & a better alternative

Secured credit cards: How they work, dangers to avoid & a better alternative

I have received several questions about secured credit cards, which can be a great way to build up credit if you don’t already have it.

Secured credit cards take time to build your credit

Secured credit cards come in all flavors. There are legit ones and there are really crummy ones. I usually find that credit unions are among the best places to get a legitimate secured card.

The basic way it works is you put money on deposit with a credit union (or bank) and they use that as collateral for the card. You can only charge up as much as you have on deposit. This allows you to build a credit history where you previously had none.

Here are 3 things to look for in selecting a secured card:

  1. A reasonable annual fee of no more than $60
  2. No application fee
  3. After 12-18 months of paying on time, be sure the issuer will upgrade you to a traditional credit card.

Fresh start programs offer a faster route

My preferred way for you to get credit is more of a fast track: Join a credit union that has a “fresh start” program and apply for their credit card. The fresh start program is an informal name for any of a number of initiatives at credit unions that are geared toward people who have never had credit before.

Like with a secured card, the fresh start program will have you put money on deposit with the credit union. Then the credit union will write you a small loan or issue you a Visa or MasterCard with a small limit against the money you put in savings. But unlike a secured card, the credit card from a fresh start program reports as regular credit from day one. And that’s why it’s better.

By the way, you can locate a credit union near you by visiting and using their search tool.

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