There’s an old adage that says you need credit in order to get credit – and it’s true. It’s also not enough to have credit cards, untouched, burning the proverbial hole in your wallet. You have to use your existing credit – consistently and intelligently – in order to get more credit.

There is a way to beat the system, however. No, we’re not talking about creating an alternate identity or forgery or anything like that. There is a completely legal, legitimate way to begin building (or re-building) your credit. It’s called “using secured credit cards,” otherwise known as “prepaid” credit cards.

Secured credit cards are revolving lines of credit, where you have the cash to back up your debt. In other words, you deposit $500 into the credit card account, and can then use the credit card to charge up to $500 (give or take, when you factor in fees).

Most secured cards have annual fees. Shop around for the best interest rate and lowest annual fee. You might even find a card with a 0% APR. Some secured credit cards offer a credit limit of up to $10,000 – assuming you have the cash to back that up. This type of credit limit may be good for someone with liquid assets who has just never taken time to build credit.

Most people with poor credit, however, are just starting out in building a financial secure future. A secured credit card with a limit of $200 to $1000 is probably more than enough. Remember, you still have to make your payments every month.

Some features to look for in a secured credit card include:

• Low or 0 % APR
• Low or no annual fee
• No monthly fees or “insurance charges”
• Reports payments to all three credit agencies monthly

This last aspect is very important. Your timely payments must be reported to the credit bureaus if you want to build your credit and eventually qualify for an unsecured credit card or other type of loans, including a mortgage or car loan.

Additionally, you may want a card that:

• Requires no income check or credit check to qualify
• Permits cash advances through an ATM
• Promises guaranteed approval

Some popular secured credit cards include:

• First PREMIER Bank Mastercard
• Platinum Zero Secured Visa
• Orchard Bank Secured Mastercard
• Public Savings Bank Secured Visa
• Centennial Secured Mastercard

Of  these, the Platinum Zero Secured Visa appears to be the best deal, with 0% fixed APR for the life of the card and no annual fee. The card reports your payments to all three credit bureaus, and also offers free Personal ID Theft Protection. You can get a secured credit limit of up to $5,000.

The First Premier Bank Mastercard also did very well in secured credit card reviews.

Companies know that people shopping for a secured credit card may be desperate for credit – and some unscrupulous companies take advantage of their customers. Stay away from cards with:

• Excessively high annual fees
• Poor customer service – Just because you have a low credit score, or no credit, doesn’t mean you shouldn’t be treated with respect.
• Hidden fees or “insurance” charges

Some cards may zap you with so many fees that, out of your $200 security deposit, you’re left with less than half of that amount to actually charge.

Once you’ve applied for your card – and been approved – you can start re-building your credit. Just having the card won’t do much for your credit score. Instead, use the card and then make at least the minimum payment each month.

Concerned about digging yourself into debt? Don’t worry, since you can’t charge more than your credit limit – which is secured.

Some people unaccustomed to using credit may be tempted to pay the balance in full each month. But you’ll build up your credit faster by paying a little bit more than the minimum each month. Even if you’re paying interest, don’t be concerned if you carry a balance for a month or two. It’s costing you a bit of money, but it’s helping to build your credit score. And that’s your long-term goal.

Credit cards offer tremendous benefits. It’s difficult to rent a car, book a hotel room, or shop online without a credit card. Additionally, better cards provide perks such as warranty protection, cash rewards, and special offers.

By starting with a secured credit card, you can begin to build a strong financial future. If you make timely payments, some secured credit card companies will even increase your credit limit without asking for a larger deposit. As your credit score rises, they may convert your card into an “unsecured” card. It’s a safe and easy way to build your credit.

(3 votes, average: 3.67 out of 5)

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