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A secured credit card requires a security deposit to act as collateral for the line of credit. They are designed for people with limited or damaged credit who want to rebuild their credit history.

Benefits of secured cards include:

  • People with limited or damaged credit histories can get them
  • Most report to major credit bureaus, so they will help you rebuild your credit history and improve your credit score

Drawbacks of secured cards include:

  • Fees including startup fees, monthly fees and/or activation fees
  • High APRs - it is best not to carry a balance from month to month on a secured card because of the high interest rates

While many secured cards charge high interest rates, it is still possible to find low APR credit cards. For example, the Applied Bank® Secured Visa® Gold Preferred® Credit Card comes with a 9.99% (Fixed) low APR. Plus, you can always avoid paying interest if you pay off the card balance in full each month.

A secured card may be your only option though for getting a credit card and rebuilding your credit. Your initial deposit is usually refundable, and there are secured cards with fairly fee schedules and good customer service. Just make sure you do your research to find the one that is right for you. For example, the OpenSky® Secured Visa® Credit Card will refund your deposit when you pay off the card and close it (provided the deposit hasn't been used). The card also reports credit activity to all three major credit bureaus allowing you to build your credit quickly.

If you are trying to build a good credit history, make sure the secured card you plan to apply for reports to credit bureaus. And check to make sure the issuer will refund your deposit when you close your account.