How to Pick a Secured Credit Card

Dear Credit Card Adviser,

Please advise me on a good secured credit card to help build my credit score.

-- Peggy

Dear Peggy,

Secured-card offers come and go, so I'll give you some general advice for selecting such a card.

A "good" secured credit card is one that automatically reports your payment history to the three major credit reporting agencies -- Equifax, Experian and TransUnion -- and charges a low annual fee.

If it doesn't report your payment history, you're not getting any "credit" for paying your credit card bill on time. Fortunately, all the secured credit cards in Bankrate's 2011 Credit Card Fees survey reported to the three major credit reporting agencies.

What's a typical annual fee? Annual fees on secured cards ranged from $18 to $40, according to our survey. None of the cards charged any other upfront fees.

Secured cards require you to pony up several hundred dollars, which will serve as collateral in case you default. If your cash flow is lacking, obviously you'll want to check out the minimum deposit requirements. Some credit cards will permit subsequent credit-line increases without an additional deposit, but in many cases your deposit will determine your credit limit. Some secured credit cards also will pay interest on your deposit, but expect paltry yields -- 0.1% was the most common return rate in Bankrate's survey.

I also would find out how quickly you'll be able to graduate to an unsecured credit card with that issuer and get your deposit refunded. Ask which cards you could potentially qualify for once you're eligible, and consider whether you'd actually want any of those cards.

Finally, if you're going to carry a balance month to month, compare interest rates before selecting a credit card.

Happy shopping!

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