Credit Cards (Secured)
Consumers who have a low credit rating or no credit history can establish credit by applying for a "secured" credit card. Secured credit cards are issued by banks that hold a consumers deposit as collateral against possible default. The credit card holder cannot withdraw their money from the account for as long as they have the card. Therefore, a consumer should not apply for one unless he or she can afford to have the deposit money unavailable to them while they use the secured credit card. The line of credit available on the card is equal to a percentage (sometimes as much as 100%) of the amount on deposit. The individual card issuer dictates the terms and conditions applicable to the card, including interest rate, annual fee, and credit limits, just like unsecured credit cards.
Some banks and other companies will not issue regular credit cards to a consumer whose credit history includes delinquencies or bankruptcies. Therefore, a secured credit card may be a solution for a consumer who needs to build a favorable credit history.
A consumer can use a secured credit card as a means to open an account with a local department store. If the consumer makes regular timely payments on the department store's account, the information will be reported to credit bureaus, this establishes a new and favorable financial history for the consumer.
In every advertisement or solicitation for a secured credit card, the issuer must:
(1) expressly identify it as a "secured credit card";
(2) prominently disclose that credit extended under the card is secured; and,
(3) describe the security by item or type. (CC§1747.94; federal law P.L. 100-709).
Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, North West
Washington, DC 20580