Whether it was the economic recession, job loss, medical bills or other reasons, many people have felt the sting of with financial hardship, including the loss of credit card accounts.  Being forced to negotiate unsecured credit card debt in order to settle that debt can be costly and negatively impact your credit (FICO) score.  To get that side of one’s financial life going again some consultants suggest secured credit cards, but first you have to find out if it is right for you.

There is a vicious cycle in which people get stuck when they either have no credit or bad credit:  no one wants to give them credit; and if they do, the interest rate will be very high.  Secured credit cards are rising in popularity for that reason.

Understand the difference between unsecured and secured credit cards.

Unsecured credit cards are based primarily on your credit score and history.  The bank will then give you credit in an amount of borrowed money.  It is called unsecured because the money is not tied to a possession or security deposit that the bank can retrieve if the balance goes unpaid.

The way secured credit cards work is by requiring a deposit that is a certain percentage of the amount borrowed on the card.  For example if you make a deposit of $500, then your credit card limit would be anywhere from 50 to 100% of that $500.

Check out the fees.

Even though secured credit cards have a deposit, they still work like unsecured credit cards. Depending on the card there may be annual fees.  Secured credit cards also tend to have higher interest rates.  Some credit card companies go as far as charging additional fees, such as insurance that can be required in order to get the credit card.  There are many different companies offering secured credit cards, so before you say yes, look around for the card with the least amount of fees.

In order to really rebuild or build credit, it is important to use the credit card but pay off the balance in full every month. Also, some secured credit cards have options that allow you to get an unsecured card after a certain period of time.  Whatever you do, make certain it works within your budget.

Initially secured credit cards may seem like the answer to all your problems.

However, each bank has certain requirements in order to decide if you qualify or not.  Before you apply for a secured credit card, it might be in your best interest to call the bank (or look online) and see what the requirements are.  Some companies will not allow you to get a secured credit card if you have been through bankruptcy, while others will look at the circumstances, when the bankruptcy occurred, and decide on an individual basis.

There are also some credit cards that are convenient and sound appealing because you can apply online and they will let you know if you qualify immediately. But as this and the other secured credit card offer types promise a great deal, there is always fine print.  Review all the offer factors – fees, interest, insurance, future benefits and so on – to determine if a secured credit card may indeed help you build or rebuild your credit standing.

Please Note:  This information is for educational purposes only.  For specific advice, please contact a qualified professional.