A secured credit card is a worthy way to have control and disable you from overspending. They usually have credit lines ranging between $200 and $500, and relatively high interest rates, ranging between 18 percent and 20 percent. Often, there are annual membership fees as well. The idea is that you use money as collateral and you advance it to the card issuer. The issuer then places this money in a type of deposit account that has the ability to earn interest. In exchange for this forwarding of funds, you receive a credit line that is equal to the amount you gave, or a percentage—higher or lower—than the allotted amount.

Be aware that you give up control of the money you deposit. The card issuer gets a security interest on these funds and the interest the money earns. When you have paid your account in full and have returned your inactive card to the issuer, you may receive a full return of the money you initially deposited. You need to ensure that the card issuer is going to report your credit history to a credit bureau as other credit cards would do; however, you do not want the issuer to report the card as secured in order to get the positive payment history recorded without judgment based on your secured credit need.

The reason this is so beneficial for the lender is that there is minimal risk involved. If you do not pay your debts, the lender can take your security deposit, therefore guaranteeing a return on the principal amount that you were loaned. If you paid any fees or accrued any interest before defaulting on payments, the lender will also have earned money on such transactions.

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