Detecting Secured Credit Card Traps

Struggling with poor credit or no credit at all? Be wary of advertisements that proclaim automatic approval for credit cards regardless of your credit score. Credit cards that oblige consumers to open a bank account with hundreds or even thousands of dollars use this money as security for the cardholder's credit line. Secured cards require these safety-net savings accounts and often allow customers to spend between one half and the entire amount in the account.

Repeatedly being denied credit becomes tiresome and frustrating. Secured credit cards may particularly tempt consumers who want to build good credit and those who wish to recover from troubling times to restore their credit. While these cards seem to offer an easy path to positive credit scores, potential cardholders should be wary of advertising scams, high interest rates and annual fees not immediately noted.

Though many secured cards are completely legitimate and well suited for establishing or rebuilding credit, some secured cards may pose problems for consumers. Misleading ads for secured cards many times deceive customers by imposing charges and restrictions that make the convenience seem to dissipate. Hidden requirements and terms of agreement may range from minor nuisances to major fees, interest rates and more, like the following.

- Special requirements like age and income level may bar some people from attaining a secured credit card.

- Annual fees and considerably higher interest rates make up for the ease of credit card approval.

- Fees for application and processing, as well as security deposits, up the ante for cardholders who didn't expect to pay an arm and a leg to build or restore their credit rating.

- The '900' numbers within the advertisements often carry charges anywhere from $2 to $50-plus.

A good option for some, secured cards may alleviate credit setbacks for those who have no credit and for those who have been denied credit. While traditional credit cards may carry some fees and restrictions, secured cards at times enforce stringent terms that inhibit consumers' financial flexibility. Imposed annual fees, escalating interest rates, application and processing fees and security deposits all impinge on a cardholder's dispensable income.

If after careful contemplation you decide to open a secured credit card account, attempt to find one under the umbrella of a financial credit union. Credit unions may be more lenient in waiving excessive fees and lessening interest rates. Make every effort to find a card that does not impose an application fee, and examine the agreement to learn of every fee involved prior to opening an account.

Consumers who are serious about building or rebuilding their credit should attain answers to the following questions before opening a secured credit card account.

- What is the minimum opening balance for the account?

- What fees will be incurred and what interest rate should be expected?

- Does this agency report to the three main credit bureaus?

- When reported to the credit bureaus, does the agency identify the account as a secured credit card? Secured cards are not always looked at positively when determining one's credit.

- What type of bank account is necessary to open a secured card?

- What percentage of interest will be earned on its balance?

- What must happen for one to qualify for a secured card and how long does the process take?

- What possible penalties and fees might be encountered in the lifetime of the secured card account?

As with any credit card application or other contract, consumers who are considering a secured card should thoroughly read all documentation and learn about every fee involved. Explore interest rates before encountering them and find out if the customer service phone numbers are toll-free or toll calls. Consider all the pros and cons of the secured cards and use discretion when selecting one. Remember, if something looks and seems too good to be true, it probably is.