Credit cards are a handy option; they allow you the ultimate convenience of transactions sans the risk and hassle of carrying cash in your wallet. However, high interest rates might make them a bad choice for those who cannot maintain credit cards judiciously. Credit cards are available only for customers with good credit history, so if you have poor credit, it will be difficult for you to get a regular credit card. In such cases, a secured credit card is a great option to enhance your credit worthiness.
Secured credit cards help people with no credit or bad credit to establish or re-establish their credit. True to their name, secured credit cards require a deposit that's held in an account as security, in case the customer defaults on payments. Secured credit cards always charge an annual fee, but it is wise to shop around and choose a card that doesn't charge an application fee or require a staggering security deposit. Some secured credit cards set minimum and maximum deposit limits and income and age restrictions might apply. Some credit card lenders insist on a savings account with their bank before issuing a secured credit card. Typically the credit limit is equal or greater to the deposit held and your credit limit need not be the same amount as your deposit.
Secured credit cards can be used as identification, and can be used in place of a regular credit card to make a hotel reservation or rent a car. Sometimes the bank will reward you for good payment and add to your credit line without requesting additional deposits. A benefit from this is that the deposit accrues interest at the same rate as that of a savings account. The secured credit card account is in your name as long as you keep the card, so it doubles up as a long term savings account. If you maintain a perfect payment history, the bank may increase your credit limit and may even return the deposit after a certain period.
If you want to re-establish your credit, make sure that the payment details of your unsecured credit cards are reported to the major credit bureaus. Those who do not report to the bureaus do not benefit from credit repair. Also ensure that the secured card status does not get in the way of your future prospects of acquiring fresh loans.