SECURED CREDIT CARDS

Secured credit cards require that collateral, in the form of a savings account, is deposited with the credit card provider. Those funds secure the amount of credit extended to you. Secured credit cards are true "credit" cards in that they do extend credit to the card holder. The card issuer loans you the money for your purchases or cash advances, and you make monthly payments on the principle and interest.

The main difference between secured credit cards and conventional unsecured credit cards is that with the secured card your credit is backed up by a savings account.

These cards are also more costly-- they have higher interest rates and may have additional charges and fees. But they are a viable means to rebuild bad credit or to establish a new credit history. After a few months of on-time payments and compliance with other terms such as observing spending limits you may take advantage of your new good history to move up to a cheaper credit card.

Because these cards are a more expensive form of credit you should carefully read the terms and conditions and make timely payments. Late payments will not only drive your credit rating down but may also trigger default higher interest rates and late payment penalties.

Secured credit cards are, however, an excellent way to restore your good credit history in a few months.