Secured Credit CardIf you’re a college student like me, you know that getting your first credit card is like taking a step into the adult world; if you’re just coming out of a bankruptcy, you know all too well how difficult it can be to re-establish your credit. For those who are new to or re-entering the world of credit bureaus, APRs, and Mr. FICO, breaking into the credit scene is daunting and frustrating. Fortunately, there is an awesome credit-card-like square of plastic that can serve as a key to the realm behind those pearly Visa gates: the secured credit card.

A secured credit card is similar to a regular credit card”you use it exactly the same, you still get a monthly bill, and you still gripe about the interest rate. It’s an easy way for you to start building credit, minus the risks involved for the lender. Secured credit cards look exactly like “real,” or unsecured, credit cards. In order to get one, you must find a bank that offers them, and open a savings account with that bank where you will deposit as much money as you would like to have in your line of credit (usually up to $5,000). Bankrate.com has an excellent spreadsheet of banks that offer secured cards, and it’s competitor, Credit.com, has a similar webpage as well.

Most banks set a minimum balance at $300, and will allow you to gradually increase the amount. It is important to remember that the money in this savings account does not actually go towards paying your credit card bills. The money in your savings account simply acts as collateral in the event that you default on a payment”which would be very, very bad, especially during the first phases of your credit establishment.

Another necessity to keep in mind when checking out secured credit cards is whether or not the bank providing the card is reporting your purchase and payment activity to all three credit bureaus. Because your credit score is derived from what the credit reporting agencies tell banks, credit card companies, and home lenders, it is imperative that all your wise spending and prompt monthly payments get reported to the bureaus. Also, it is advantageous to obtain a secured credit card that is not designated as such to the credit reporting agencies. No one needs to know that plastic in your wallet isn’t unsecured!

Pay attention to fees and rates, which are usually much, much higher for secured credit card-holders than for people with several cards and good credit. Obtaining a card with no annual fees is ideal, but not necessarily at the cost of a 25% interest rate. Of course, if you pay off your balance in full each month (which is what you should do every time!) the interest rates will not apply and will thus be of no burden to you.

As beneficial as secured cards are, there are other things to watch out for besides those astronomical interest rates. If you have federal tax liens on your credit report, chances are you won’t be able to obtain a secured credit card. For other restrictions, see Bankrate.com’s webpage about secured-card stipulations. And, unfortunately, those with no credit or bad credit are prey for scammers. To be more informed of what a credit card scam may look like, download this PDF made by the Federal Trade Commission (FTC).

In this day and age, it is nearly impossible to wander through life without the need for a credit card or the all-important credit score. To my fellow classmates: get started now! It takes a few years of solid, responsible credit-builiding to get your score into the top tier. And to my friends coming out of bankruptcy, there are always second chances. It may take 7 years for financial blunders to fade away from your credit report, but now is a great time to start rebuilding! The best of luck to you.