Secured Credit Card

Secured Credit Card

A credit card with a credit limit that is at least partially collateralized by funds in a special savings account. That is, a cardholder places a certain amount of money into an account with the credit card company, and this is used to protect the company from the cardholder's default. Depending on the cardholder's credit history, he/she may be required to place anywhere from 50% to 100% of the credit limit into the savings account. These funds still belong to the cardholder, and he/she may retrieve it if he/she pays off or cancels the secured card. Because these reduce the risk to the credit card company, it may charge a lower interest rate. Secured cards are particularly useful for persons with bad credit or little credit history.

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Secured credit card. A secured credit card is linked to a savings account you open with the bank or other financial institution offering the card.

You deposit a sum of money in the account, and you can borrow up to that amount using your card. If you don't repay what you borrowed, the creditor can access your account to cover your debt. The creditor may also change substantial fees for a secured card.

Secured credit cards look the same as other credit cards, so no merchant can identify a card as secured. But if you have trouble qualifying for credit, perhaps because you've just started working, you can use a secured card as a first step toward establishing a record of using credit responsibly.