Secured Credit Card - The Perfect Mulligan

For those of you familiar with golfing, you know what I mean. You step up the first hole, the flag is 240 yards out, a small breeze from the southeast, your backswing is perfect and….you chunk it 20 feet to the right and nail the golf cart. Time for a mulligan. Or a “do over” as the rest of us might call it.

With credit, a “do over” is also possible. Enter the Secured Credit Card. For those of you with bad credit, or perhaps new to credit, the secured credit card is a great place to start building credit.

A secured credit card is available to almost anyone (unless your credit is severely bad). It works by making a deposit into a savings account or CD. This money is unavailable to you during the time you have the card. It can earn interest and that interest will go to you. Always check the fine print to be sure. This deposit is used by the lender much like a security deposit on an apartment. If you fail to make payments, the lender can draw from this to cover their losses. Don’t let this happen as not making your payments will have an adverse effect on your credit just like any credit card. Remember, we are trying to build credit here.

Typically your credit limit will be 100% of your deposited funds. Since there is little risk to the lender for this type of card you should be able to shop around for a good interest rate. Application fees should be between $50 and $100 as well as annual fees.

This seems like a lot to give up just to get a credit card. But your alternative would be to get an unsecured card with an extremely high interest rate. In the end it may be more advantageous to get the secured card.

Of course the most important aspect of getting a secured card is to establish credit and begin driving your credit score higher. In that vain, you want to make sure the card you apply for reports to all the major credit bureaus. This is the whole reason to get a secured credit card so do your homework in choosing the rights card. See our review of some the more popular secure credit cards available online.

This should be a great stepping-stone to improving your credit or establishing new credit. If you make your payments on time you should see an improvement in your credit score in as little as six months.