Credit Card
Personal Debt Issues

Secured credit cards help rebuild credit, but can come with unnecessary costs

by Broderick Perkins

(9/9/2011) Erate Exclusive - You've suffered a foreclosure, short sale or other black mark on your credit report and want to rebuild your credit.

Take a look at secured credit cards, but be sure to read the small print and watch out for inducements that can cost you unnecessarily.

If you have had trouble getting approved for a regular unsecured credit card, a secured plastic could put you on the right track to a better credit report.

Secured credit cards require that you open an account and deposit money as collateral in case you can't make a payment. The deposit varies from a few hundred dollars to $1,000 or more.

Your credit limit is typically based on your deposit, that is, if you deposit $500 your credit limit is $500.

Your interest rate, fees and maintenance costs vary from on card to another and the details are in small print so tread softly and read all the disclosures and terms that come with the account, before signing on.

Free sites like Credit.com, CreditCards.org, Bankrate.com and others let you compare the terms and costs.

Erate.com offers secured credit card shopping tips.

Not to be confused with prepaid cards, but just like traditional unsecured credit cards, secured credit cards report your payment activity and account information to credit bureaus. That means it's important to make timely payments and avoid using too much of your available credit. Payment histories make up 35 percent of your credit score.

While secured credit cards can be an effective way to build or re-establish your credit history, and come with the same Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 protections afforded regular credit cards, the Federal Trade Commission says beware.

Marketers use the secured credit card hope of improved credit to lure you into paying unrelated fees.

Be wary of television, newspaper, direct mail and Interned ads that appeal to those who have a poor credit history or none at all, by claiming "Anyone can qualify for a major credit card!"

The ads mislead you into believing getting a card is as simple as calling a '900' number, but no one can guarantee you even a secured credit card.

When you do call a 900 number, however, you will be billed for the call.

Bogus "credit repair" and "credit clinics" also similarly pitch the cards.

The services typically also ask for your name and address and other information to receive a credit application, or they give you a list of banks offering secured cards.

You also may be instructed to call another 900 pay-per-call number "for more information."

What the come-ons don't tell you, in addition to the cost for the call, includes:

• How, beyond sending you an applications, they will use your personal information.

• You may have to pay a security deposit and application and/or processing fee.

• Some cards also come with an annual fee.

• The cards typically also comes with additional eligibility requirements, including income and age. No one can guarantee you a card.

• Bona fide secured credit card issuers have to check your credit report and other qualifying information. You simply may not qualify, even for a secured credit card, but calling the 900 numbers will cost you.

The FTC advises you to stay away from offers of easy credit, especially those that come with a 900 pay-for-call prefix.

You should be the one to initiate shopping around for a secured credit card -- or any credit card, for that matter -- without the pressure of an unknown solicitor.

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