Using an Unsecured Credit Card for Establishing Credit

Secured Credit Card or Unsecured Credit Card

A secured credit card or unsecured credit card can both be used like any credit card: to pay for goods and services. The difference between the two is that a secured card requires you to open and maintain a savings account as security for your line of credit; and that is not required of an unsecured credit card for establishing credit.

The amount in a secured credit card account decides the amount of credit you will be allowed. Usually you will be given a credit line for about 50% to 100% of the amount of the savings deposit. The bank will often pay interest on your savings account, which earns you money. However, you will be charged a processing fee for a secured card, which can cost up to several hundred dollars. The processing fee may or may not be refunded if you are denied credit. Be sure to ask what the total amount of fees are and what the interest rate is, because it is often higher than an unsecured card.

Building Your Secured Credit Card Account

Some companies deceptively advertise major credit cards through television, newspapers, and postcards. The ads may offer unsecured credit cards or secured credit cards—or they simply do not specify the type of card. The ads usually lead you to believe you can get a card simply by calling the number listed, but the number is not necessarily toll-free.   You may be billed just for making the call to the listed ‘900' number.   The ‘900' number response may simply tell you to give your name and address to receive a credit application, or give you a list of banks offering secured cards. It also may tell you to call another '900' number for more information, which adds further charges. 

These ads often conceal the following information: 

• The cost of the '900' call -- which can range from $2 to $50 or more; 
• The required security deposit, application, and processing fees; 
• Eligibility requirements like income or age; 
• An annual fee or the fact that the secured card has a higher than average interest rate o­n any balance. 

How to Avoid the Scam  

Look for the following indications of a possible credit scam: 

• Offers of easy credit. No o­ne can guarantee to get you credit. Before deciding whether to give you a credit card, legitimate credit providers examine your credit report. 
• A call to a '900' number for a credit card. You pay for calls with a '900' prefix -- and you may never receive a credit card. 

Credit Reporting  
If you're considering a secured card as a way to build or re-establish a credit record, make sure the issuer reports to a credit bureau. If your card issuer doesn't report to a bureau, the card won't help you build a credit history. 

For More Information 

• To build a credit record, you may want to apply for a charge card or a small loan at a local store or lending institution. Ask if the creditor reports transactions to a credit bureau. If they do -- and if you pay back your debts regularly -- you will build a good credit history. 

•  If you cannot get credit o­n your own, you can ask a relative or friend with a good credit history to act as your cosigner. The cosigner promises to repay the debt if you don't. 

• If you're interested in applying for a secured credit card, the BankCard Holders of America (BHA) provides a list of institutions offering secured cards. Send a check or money order for $4.00 to: 

•  "Secured Credit Card List" 
BHA Customer Service 
524 Branch Drive 
Salem, VA 24153 

• If you're having problems paying bills, you may want to contact a credit counseling service. Counselors try to arrange a repayment plan that is acceptable to you and your creditors. They also can help you set up a realistic budget. You can find the office nearest you by checking the White Pages of your telephone directory.