Secured credit cards can be a great option for those with no credit or poor credit. But be sure you understand how they work before you sign up.

Secured cards require a security deposit, ranging from a few hundred to several thousand dollars, which is generally placed in an interest bearing account, such as a savings account. Your line of credit is usually 50-100% of the amount of this deposit, with the deposit acting as collateral against your credit line. (This limits the risk for the card issuer, and ensures payment in case you default on your account.)

The interest rate is generally higher for secured cards, and you may be charged an annual fee. Also, additional fees, such as application and processing fees, can be extremely high.

So, if you may only be able to spend as much as you deposit and you get hit with a load of fees, what's the point of getting a secured credit card? Well, you'll have the convenience and flexibility of using a credit card. And, if you manage your account responsibly, you're on your way to building a good credit history!

Before you apply - a few important factors to consider...

• Secured credit cards may charge hefty fees (including annual fees, application fees, and processing fees) which can eat away at your available credit line. Make sure that you understand the total fees, and all terms and conditions of the offer before you apply. Also, if an application fee is required, make sure that you'll be refunded if your application is refused.
• Not all secured cards place your deposit in an interest bearing account. Be sure to choose a secured card that pays interest on your deposit, and that pays you the interest instead of pocketing the gain themselves.
• Beware of some secured credit offers. People with less-than-perfect credit are easy prey for crooked lenders. Some cards offered charge more in fees than you'll ever see in available credit. Carefully examine all fees and limitations before you even apply for this type of card.
• Beware of "guaranteed" or "pre-approved" credit card offers. These often offer too-good-to-be-true credit terms, but require the payment of fees in advance. If you actually receive a card (you may never actually hear from them again!), it will likely cost you more than it is worth.
• Introductory rates are usually short-term offers, lasting anywhere from a couple of months to a full year. Introductory rates may apply only to new purchases, balance transfers, or if you're lucky, both. Be sure to note any special conditions or fees that may apply to these promotional rates. Also, be aware that the long-term rates shown generally apply only to new purchases; interest rates for balance transfers and cash advances may vary.
• Note whether the APR is variable or fixed. Most cards have variable rates, which means the rate can fluctuate regularly. Fixed-rates can also be raised when interest rates climb, but the changes will not occur regularly and require at least 15 days notice from the card issuer.
• Be aware of annual fees, balance transfer fees, foreign transaction fees, over-the-limit fees, late payment fees, and the myriad of other fees that may apply. Check with your issuer and carefully read the fine print of the offer to determine these numbers and avoid any unpleasant surprises!