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A bank secured credit card is a great tool for individuals that need to enhance their credit history or have no credit history and need to start creating one. Secured cards require an upfront cash deposit but you can actually earn interest while your money sits securely in a savings account. That savings account is the banker's guarantee that the money they lend to you will be paid back as agreed between you and the lender.

In effect, the bank makes the amount of the loan up to the amount you have in your savings account. You agree to a payment plan and interest rate. Usually, because it's your money being used as the guarantee, the interest will be much lower than a standard credit card interest rate. Plus, your savings will earn interest. That savings interest slightly reduces the net amount of interest you will pay during the term of the loan. Secured cards usually carry either a Visa or MasterCard logo so nobody will know that it's a secured credit card and not a standard credit card.

Since you are putting up your money to guarantee the lender will be paid back, if you miss a payment the lender will automatically deduct the payment, including interest, from your savings. However, a missed payment or late payment will show up in your credit bureau history so you need to make payments on time. Just because it is your money, you do not have the right to miss payments. This is still a credit card and is subject to the same credit reporting rules as a traditional credit card even though the bank has no risk.

Secured credit cards are an ideal tool if you have gone bankrupt or have really poor credit history or you are a young person who is just beginning to build credit.

When you pay your monthly payments as agreed, you will be building your credit score. After a while of good payment history, your lender might upgrade you to an Unsecured Card and release your savings from being held as collateral. Your goal should be to get an unsecured credit card. This means you have become a good credit risk and this opens many financial doors for the future. It will be easier to get a home mortgage, get a car loan, or make other major purchases on credit.

Keep in mind that your credit limit will be based on the amount of money you have in savings with the bank. You can never charge over that amount. This limit prevents you from charging more than you have in savings but you still need to worry about penalties such as late fees. Secured cards are no different from unsecured cards in this respect. Late fees can still be charged and your lender can demand a higher interest rate should you become unreliable in your payments. Even with a secured card, it still takes about 12 months of payment history to see an improvement in your credit score if you have a spotty credit history. For those people just beginning, the time frame is shorter because you have nothing negative to overcome.

Your lender is your best credit adviser. Touch base personally with your lender. Talk about your credit history and your score and ask what you can do to make improvements. They want your business, now and in the future, so they are more than happy to give advice. It is in their best interests to keep good customers so use that to your advantage. Nothing beats a "hometown banker" as opposed to big banks that offer secured cards online. You are just a number to them. When you are building or fixing your credit you need that personal touch that only your local lender can provide.

There are other great tips for fixing or building credit at the Free Credit Report Scam blog. They have free videos, articles, and discussion forum. It's all free information and no signup for anything. A secured credit card is just one of many tips you will find on the blog. Visit now and be more prosperous!

By Jim DeSantis