Q: I am a new immigrant to the United States, and I need to build my credit. Which cards are secured and which are not?
Secured credit cards offer a very good way for new residents of the U.S. to establish a credit history. However, it's becoming harder to tell the difference between secured credit cards and prepaid debit cards. Only one of these can help you build your credit history.
When you open a secured credit card, you'll actually get two bank accounts. One is a credit card that, to the average cashier, looks and works just like any other credit card. The other account is a basic savings account that acts as collateral for your credit card. That way, if you default on your payments, the bank can shut off access to your card and pay itself back with the balance of your savings account.
With a secured credit card, the only time you'll deposit additional funds into its linked savings account is if you intend to extend your credit limit. You'll get a credit card statement in the mail or online every month that states the minimum payment you'll need to make to avoid default.
If you don't pay down your balance at the end of each statement cycle, you'll start to accrue interest -- even though you still have cash on deposit with the bank. Don't get caught paying a finance charge to borrow your own money. Racking up charges on a secured credit card and paying them off establishes your ability to manage your bills.
However, you may not even need a secured credit card, depending on your employment and residency status. A number of regional banks with ties to immigrant communities have launched pilot programs that may enable you to qualify for an unsecured credit card based on your job and your personal references.
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