Secured credit cards can be used to help your credit score but only if the lender reports to the credit rating agencies regularly.
They are not widely available at this time but it is worth the search to find a lender who will issue you a credit card account that is secured with funds you provide.
The Credit Bureau Report
Before accepting the offer of a secured card you should check if the lender reports to the credit bureau and how often those reports are submitted.
The best answer you will have is a monthly reporting. Many secured cards report on a quarterly basis and this will also help correct a bad credit report though it will take some time.
There are other options available if you have black marks on your credit report. Prepaid debit cards are widely available from retailers and can be used for purchases just like regular credit cards.
However, unlike a secured credit card, those prepaid cards will not help you rebuild a damaged credit file as they are not revolving charge accounts and do not have a monthly payment plan or even an interest rate.
Ask the Right Questions
Secured credit cards will usually carry application fees, processing fees and annual fees. Ask what the fees are. Ask how much deposit you will be expected to provide.
This is the deposit that provides the “security” for your account. It acts as an insurance policy for the lender. Find out if the deposit will earn interest and what that interest rate currently is.
Ask what situations would cause the lender to take your deposit. Some will take money from your security deposit if you are late for a single payment while others will use the deposit only in the event you are severely delinquent on your account.
Knowing what the penalties are and when they would be applied will help you be financially responsible. After all, eventually you want to get your entire deposit returned to you.
Checking and Savings Account
You may be required to have a checking and savings account with the bank issuing the secured credit card and there may income restrictions as well.
You should ask if your entire deposit will be your credit limit on the account or whether lender will allow only a percentage of your deposit as a credit line.
The best option you can find is a lender who will allow your secured account to be converted to a standard credit card account after a specific period of timely payments.
This option has hidden benefits as these secured cards charge fees up front yet often carry low interest rates and lower fees than many standard cards.