Secured cards: Not just for solving credit problems

Closeup of credit card

If you’ve had credit problems, you’ve probably heard of secured credit cards.

But improving credit is just one of the ways that secured credit cards can be useful. Secured cards also can be a good choice for college students and the elderly.

To get a secured credit card, you give a bank a deposit of at least $300. The bank lets you charge between 50% and 100% of the money you deposit.

Apart from the deposited money behind it, a secured card acts like a standard credit card. It lets you charge purchases and even rent a car or make hotel reservations, two things you may not be able to do with a prepaid card.

You can carry a balance on the card and pay interest (and a minimum monthly payment) or pay off your balance every month.

As you pay your bill on time, you improve your credit score. The deposit earns interest unless you default. In that case, the bank uses it to pay off your card balance.

That’s good for anyone who needs to repair a credit score.

Here are two instances where secured cards might be good for people who don't have credit problems:

A secured card can be a great way to help a young person build credit. Arrange a secured card for a child who is heading off to college, for instance, and you give her practice in keeping track of what she spends and paying off the bill every month.

Because the size of the deposit behind the card determines the credit limit, your student can’t charge more without putting more money with the issuing bank. That helps ensure that she doesn’t spend more than she -- or you -- can easily pay off.

A secured card also can be a good choice for an older person whose faculties aren’t as sharp as they once were. An older parent or grandparent with a secured card still has the freedom to charge purchases.

The card’s credit limit, however, won’t go up on the strength of a request alone. The deposit size has to increase. That rule, again, can help you keep family debts to a manageable level.

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