Secured credit cards to rebuild credit work like other credit cards with one exception – customers must secure the credit limit with a bank account, which they cannot access until the card is cancelled or the secured restrictions are dropped by the credit card vendor. Individuals can deposit from $200—$3000 to cover various credit limits. The bank account cannot be touched, but otherwise the credit card works just like unsecured cards. Consumers can use these cards to order online, pay bills, get cash advances, and use anywhere credit cards are accepted.

People with no credit history or poor credit can build credit and improve their score with the three major credit-reporting agencies. All that is required to improve credit score is to use the card and pay the bill on time each month. Keeping balances low also provides significant improvement in credit scores. Many people choose to use a credit card for all purchases and pay the bill off when it comes due to avoid interest rates. Following this approach will substantially increase credit scores over time. Eventually, the secured credit card lender will lift restrictions, or consumers will qualify for credit from other providers.

Top Five Reasons to Apply for a Secured Credit Card

There are many reasons why consumers stand to benefit by obtaining secured credit cards with no annual fee. The top five reasons are as follows.

1. When making hotel and plane reservations for travel, a credit card is needed. Even people who plan to pay cash must provide a valid card number to secure the reservation. Travelers do not need to find a friend or family member to guarantee their tickets or reservation, which can be an embarrassing situation.

2. Using a credit card builds a credit history that can help consumers obtain a car loan or home mortgage. The better a credit score, the lower the interest rate for these long-term loans will be. Even a point or two can make a significant difference in the terms of large loans, and consumers should utilize all available resources to reduce interest rates. When applying for loans or credit cards, consumers should cluster applications within a two-week period. Credit requests can lower credit scores, but multiple requests within a short time period will not negatively impact a credit rating.

3. Consumers can utilize a secured credit card to order online for convenience. More shoppers buy goods and services directly online, and a credit card is necessary to pay for these products. When poor credit customers obtain a card, they have immediate access to all the products the web has to offer.

4. Customers can use their secured cards to pay recurring bills. With a valid card, customers can schedule automatic bill payments or pay manually each month. This option saves time and money, removing the necessity of mailing payments or making them in person.

5. Consumers need a credit card to rent a car. If a car breaks down or is damaged in an accident, people without credit cards cannot rent a car. Secured cards allow consumers the option of renting a car locally or at any travel destination around the world.

Shopping for the Best Secured Credit Card Offers

Even though some consumers have poor credit, they should still shop around for the best offers. The best secured credit cards offer reasonable interest rates without additional fees. Some lenders take advantage of people with bad credit by tacking on high charges to secured accounts, requiring high insurance fees to qualify, or charging exorbitant rates of interest. Consumers need to check each deal carefully.

One of the best companies for rebuilding credit is Orchard Bank. Annual fees are waived for the first year, and the company reports to the major reporting agencies monthly to build credit. There is no processing fee for people with poor credit, and the company’s secured MasterCard has an annual interest rate of 7.90–19.90 percent. The minimum secured account is $200, and credit limit increases are granted to consumers who make their payments on time. The card will be upgraded to unsecured status for customers with dependable payment histories. Applicants should have a credit score of at least 494 to obtain approval for this secured card. The average credit score of people approved for this card is 599.

So can I still apply for a credit card if you have bad credit? If you know you have a major blemish on you credit score you should not consider applying for any Diamond or Platinum credit cards that requires excellent credit. I know these cards offer perks like 0% intro APR and up to 5% cash back. But you will have 0% chance of getting it approved. Instead, since your credit history is poor, you should apply for a secured credit card. These cards don’t offer reward points or cash back, neither do they give you a credit line without your making a deposit first. Usually the credit line is the same as or a few hundred dollars higher than the amount you deposit. The credit is not an issue anymore since the card issuers can take the money from you deposit in case you don’t pay the balance due.

In addition to deposit to secure the credit line, you will have to pay a higher interest rate than that of regular credit cards. But if you are determined to get your credit back to good standing, apply for one of those credit cards and always make the minimum monthly payment, or even better – pay off the balance every month. Your credit lender will be willing to low the interest rate. And it will become easier for you to borrow more money and apply for a mortgage later.