Expert Q&A

Secured card may be best when on a fixed income


With your deposit as your credit line, you can’t spend more than what you can repay

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Dear To Her Credit,
I’d like to get a credit card for convenience’ sake and to build up my credit history. Is it possible for me to get a secured Visa with my credit union, Patelco? I figure I’ll need to get a secured card because of my low income level and lack of credit history. I receive a total of $905 per month SSI disability, of which I pay monthly rent of $550.

Also I have a thin credit file because I have been on disability for 13 years, so my previous credit doesn’t show anymore.  — Millie


Dear Millie,
A secured card is a great solution for someone like you who may have trouble getting an unsecured credit card.

A secured credit card can help establish or rebuild your credit history, just like any other credit line. Know that prepaid cards, however, are not credit products and thus are not reported to the credit bureaus.

To obtain and use a secured card, you must make a security deposit. Some issuers require just a couple hundred dollars and others require your entire deposit to be equal to the credit line that is extended. If you don’t make timely payments, the lender’s recourse is to take any unpaid balance from your security deposit. You can see why the lender has substantially lower risk with this type of credit instrument. There’s no reason I can see that you shouldn’t be able to get a secured card if you have the money to put into the security account.

Unfortunately, because secured cards are marketed to people with bad credit or little credit history, some lenders offer secured cards with high setup fees, annual fees or other unfavorable terms. By shopping around, you can avoid overpriced secured cards and find one that meets your needs.

Your credit union, Patelco, does offer a secured credit card. Patelco’s website says you can secure your credit limit with an interest-bearing savings account equal to 100 percent of your approved credit line. Patelco also says that if you have a checking account with them, you can choose to use your secured credit card as overdraft protection for your checking account.

After you keep your Patelco secured account in good standing for 12 months, you may be able to get a limit increase without adding more money to your savings account, which converts it into a semisecured credit card. I’m not sure this is such a great selling point, however. Part of the appeal of a secured card is that, as long as your secured account is at least equal to your credit limit, you cannot end up with more debt than you can handle. As soon as you have your credit limit raised, you risk getting into debt. For people with more disposable income, a credit card balance higher than they can pay off in one month can be an inconvenience or a burden. For you, it could be financially disastrous. You can’t afford to make many mistakes on your budget.

If your purpose for getting this card is so you can buy things online, travel and so on more easily, you can do that with a relatively low credit limit. As you make purchases and pay off your balance every month, you’ll build a credit history and score.

Credit cards are handy payment tools. I’d hate to have to get along without them. I can see how you would want to get a credit card and start taking advantage of the convenience, consumer protection, possible rewards and other perks of owning one. Just keep a low credit limit and pay your balance off every month, and you’ll be taking good care of your financial situation — and your credit.

See related: Paying down debt on fixed income: Tough, but possible,  Your low-limit secured card strategy: Pay the bill early, often


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