Done correctly, this could possibly be a smart solution, but for too many people credit cards have been a one-way ticket to financial ruin.

For this reason I’m opposed to credit cards almost universally. However, if you’ve made the decision that credit card use is how you want to improve your credit standing, here’s how you can do it without risking your entire financial future.

First of all, don’t buy into the notion that an unsecured credit card is a good idea. Your credit report has already taken a number of hits, so you’ve already established a track record – and it’s not one of which you’re terribly proud. Take the moral and economic high road: go for the gusto with secured plastic.

Here’s how it works:

Your credit card lender will open a credit card account for you, secured by a “security” deposit equal to your credit limit. These companies will typically advertise credit limits as high as $10,000, but the reality is most credit limits are $500 or less. The reason? Most people can’t afford to deposit more than $500 in order to gain an equal amount of credit.

This is fine for you because it will keep your spending in check, while guaranteeing that your credit card account will be paid off if you default on your card member agreement.

You need to keep in mind that you’re going to have to come up with money on a monthly basis to pay off any purchases you’ve made with your credit card. The money may be in the bank, but your card issuer is going to pretend it doesn’t exist unless you don’t live up to your promise to make timely payments on the account.

These accounts do have a cost: Most have annual fees – some as high as $150 per year. They may charge you monthly membership, program, or participation fees. If you opt to carry a balance from month to month, you’ll also pay interest on a credit card backed by a savings account that doesn’t pay you interest. The cost can be substantial over time, but if you’re responsible with the account it will improve your credit. It won’t happen overnight, but it will happen.

There are a few steps you can take to try to minimize your costs: after you’ve established a consistent record of on-time payments, you can request that the credit card issuer reduce or eliminate the annual fee. The monthly fees are another area you can try to get reduced as well. There’s no guarantee your credit card issuer will go along with it, but it never hurts to ask.

It’ll take some time, but your credit score will begin to inch back up as you make your payments on time. It doesn’t take much effort to hurt your credit rating, but correcting the damage after the fact can take quite awhile.

Do you still want to pursue a higher credit rating with plastic or have you concluded it’s more trouble than it’s worth?

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For example, an unsecured credit card may offer zero or low interest for an initial time period and then revert to a normal or high interest rate. However, there will be an account set up fee, program fee, annual fee, monthly service fee, and additional card fee that may apply. It is very important to read all the terms and conditions before signing up for these unsecured credit cards. Many of these high fees are applied the instant you get approved for the cards, and they can add up to hundreds of dollars.

A typical bad credit card that is unsecured may offer a low initial interest rate of 9.9%, and charge 19.9% and a fee for cash advances, plus a $94 annual fee, a $48 program fee, an $84 annual monthly service fee that is charged at $7 per month, and $20 per extra card. Fees are charged immediately, and you could be at your low $250 credit limit before you even charge on the card! There are high late and over the limit fees, and other fees, so it is very important to read all terms before you apply for any unsecured credit card.

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A secured credit card can be used just like a regular credit card. You will receive a bill each month. The balance does not have to be paid off each month; you are given the option of carrying the balance and paying interest on it. This can be done as long as you pay the minimum payment required each month and your balance does not go over your credit limit.

If you have no credit or damaged credit, a secured credit card is a good option. It is best to only charge on this card as much as you can pay off at the end of each month. Regular payments that are made on time are very important when trying to establish or improve credit.

Benefits of a secured credit card:
1. Establishes credit.
2. Improves credit.
3. The credit limit cannot be exceeded.
4. Useful for items that require a credit card.
5. Deposit applied to credit card reflects in the interest rate.

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