Do you understand the basics of a secured credit card? More importantly, should you be considering one for yourself?

The big difference between a secured credit card and an unsecured credit card is that a savings deposit serves as collateral for a secured credit card. To get a secured card, you deposit money into a savings account. Depending upon the issuer's policy, you may not be able to withdraw this money until the account is closed. When comparing secured and unsecured credit cards, there are several differences to keep in mind. With secured cards:

• The interest or finance charge is generally higher

• If you don't pay the bank on time each month, the issuer may withdraw the amount you owe from the savings deposit

•  There may be an application or processing fee to open the account

• Annual fees may be high

• The credit limit may start out very low, such as $100 or $200

This may sound as if the secured card is not a good choice, but it may be appropriate if you have a less than perfect credit history. As you pay your bill on time each month, it helps you build a positive credit history.

Find the Best Solution for You

There are many ways for banks and retailers to offer you credit. If the issuer you are considering doesn't meet your needs, keep searching for the one that's right for you. Be wary of third parties who advertise credit cards for anyone. These organizations may charge you a fee for processing your application. Compare these products to similar products offered directly by banks and other financial institutions to get the best deal. Eventually, you should find exactly what you need to establish or re-establish credit. After you have built a positive credit history, a bank may find you creditworthy and issue you an unsecured credit card with better terms.

Other Considerations

There are two things you should determine when shopping for a secured credit card:

• Find out if the issuer reports the type of account. If the issuer reports the account is secured, some lenders may speculate that you have had credit difficulties and may consider you a higher risk.

•  Ask the issuer to explain its policy regarding credit bureau reporting. It does you no good to work hard on establishing a positive payment history only to find out the bank didn't report it to the credit bureaus. If the credit bureaus don't have the information, future lenders won't have it either.

If you need a credit card, and a secured card is your best option, negative credit reporting may be the least of your considerations. But be aware of how it will be handled.