Using secured credit cards to improve credit history

Dear PAS,

I think using secured credit cards can be a very good way to build, or in your case rebuild, a credit history.

One important caution, though, is to be certain you are applying with a reputable company. Beware of online offers that sound too good to be true. Applying at the bank with which you have a checking account might be a good place to start.

To open a secured credit card account, you must deposit a minimum amount of money in a bank account. The lender determines how much is required. You can then charge up to a certain percentage of the amount in the account.

That money is what “secures” the account. If you don’t pay the bill, the lender will automatically withdraw the funds from the account for payment. You do not want to let that happen because it would show the bank you are not responsible in making the credit payments on time.

If you manage the secured account well, making charges and paying the bill on time each month, the lender may eventually convert the account to a normal, unsecured credit card account.

Before opening a secured credit card account, ask your lender if it reports the account. Some may not. If they do not, it will not help you build a credit history.

However, the lender may start reporting the account after converting it to a standard credit card account, so even if the secured card is not reported initially, it can be a way to get your foot in the door.

Thanks for asking.