ABA Family Legal Guide

Consumer Credit

Credit Cards

Choosing a Credit Card

What if I can't get a credit card from a financial institution--either because of a bad credit record or because I have not established a credit record?

You may want to consider applying for a secured credit card. This is a credit card issued by a bank or other financial institution that is secured by a savings account that you have deposited with the bank or other financial institution. You need to shop carefully for the best terms. Generally, you should be able to avoid an application fee. In the past, these have been quite high. Your line of credit will typically be limited to 90 percent or 100 percent of your savings account. In shopping for a secured card, compare the rates paid on savings accounts, the APR charged, and the annual fees. The APR is important, since you are not likely to be repaying your account in full each month. Also important are the late fee and any over-the-limit fee. These are sometimes quite high on secured credit cards.

Having a secured card is something like using training wheels on a bicycle. Once you have shown you can handle a revolving credit account, you should ask the institution that issued you the secured credit card to offer you the opportunity to switch to an unsecured card with more favorable terms. If the offer is not made, even after you have established a good credit record, apply for a regular credit card from another financial institution.