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For many people starting out with no credit or poor credit, the only viable option for credit are Secured Credit Cards. Secured credit cards are simply traditional credit cards where you put down the original investment. They are more like glorified bank accounts with credit cards attached to them than real cards. They serve only as a practice and trust mechanism whereby creditors can become comfortable that you can and will make regular payments.
That being said, you should be careful as some secured creditors can take advantage of you. There are several things you should look for…
- Make sure you are not paying an annual fee. The secured creditor really has little to no risk in giving you the account, so any fee would be a rip off.
- Search for the best interest rates. Once again, since there is no risk to the creditor, you ought to be able to land a good interest rate.
- Ask up front regarding how long it will take to convert your account from secured to unsecured.
- Ask what interest rates are like for unsecured cards – just in case you later choose to convert.
- Don’t buy anything. If they try to sell you fraud protection, insurance, anything – turn away immediately.
- Make sure they regularly report your payments and status to the 3 major credit agencies so that you are building positive credit.
With these basic facts, you should be able to get a strong secured credit card quite easily. Your best bet, however, is almost always your own bank.