Secured Credit Cards Have Their Own Risks
by Eileen Muhlig

A secured credit card serves a real purpose for someone who has had credit problems and is looking for a way to rebuild a strong credit repayment history. With time and a positive payment history, a lender may convert a secured card to a regular credit card.

However, concern about marketing scams is also true. As with any purchase of goods or services, you need to be a wise consumer. You've undoubtedly seen or heard ads like this one:

"Anyone can qualify for a major credit card! Bad credit? Divorced? Bankrupt? No credit? No problem! Just call .... Make the call now and get the credit you deserve. Even if you have been turned down before, you owe it to yourself. Your major credit card is waiting!"

Ads like this can be appealing if you have been, or are, in one of the situations described. But, beware - deceptive ads often leave out important information, such as:

• The cost of the 900 call, which can range from $2 to $50.
• The required security deposit, application and processing fees.
• Eligibility requirements, such as income or age.
• An annual fee or the fact that the secured card has a higher than average interest rate on any balance.

Secured and unsecured cards can both be used to pay for goods and services. When you obtain a secured card, you will be required to open and maintain a savings account as security for your line of credit. An unsecured account does not include this requirement. The availability of your savings as a source of payment on any debt you may acquire decreases the lender's risk.

The required savings deposit may range from a few hundred to several thousand dollars. Your credit line is a percentage of your deposit, usually 50 percent to 100 percent of the money saved. Usually, the financial institution will pay interest on your deposited money.

You also may have to pay application and processing fees - sometimes totaling hundreds of dollars. Before you apply for a secured credit card, it is important to shop around and get answers to the following questions:

• What is the total of the required security deposit and any application fees?
• Are these fees refundable if I am denied an account?
• Is there an annual fee? How much?
• What is the interest rate on outstanding balances?
• What is the grace period?
• Do you report activity on secured accounts to a credit bureau?

Be watchful of any opportunities you come across that guarantee that you will get a credit card. No one can make that promise. Legitimate credit providers examine your credit report. Calls to 900 numbers and offers from credit repair or credit clinic companies often rack up charges for more telephone calls, false promises and ultimately, no credit card.

So, how do you find a reliable source of a secured credit card? The Internet provides us with a few sources of trustworthy credit shopping information. Two sites in particular, www.bankrate.com and www.cardtrak.com , routinely survey the marketplace and then list the sources, application and fee information for the best deals they have found.

Copyright 2005 Post-Standard All Rights Reserved.

The Post-Standard (Syracuse, New York) February 21, 2005, Eileen Muhlig, director of education and public relations for Consumer Credit Counseling Service of Central New York, writes the local Consumer Debt column. If you have questions about credit you can contact Eileen Muhlig in care of The Post-Standard, P.O. Box 4915, Syracuse, NY, 13221, or e-mail emuhlig@cccscny.org 

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