There are two kinds of credit cards available: secured and unsecured credit cards. A secured credit card is anchored by a means of collateral – usually in the form of a cash down payment – that acts as a line of credit for the credit card. An unsecured credit card does not require any sort of down payment or collateral. The majority of credit cards in circulation today are unsecured credit cards.

A secured credit card is useful for people who either have no established credit or who have poor credit scores because they are recovering from a time of severe financial hardship such as a bankruptcy. If you cannot get an unsecured credit card at this time, a secured credit card is a great way to build a reliable credit history, showing you can pay off money borrowed.

Secured credit cards are available at most credit unions and some banks. To get a secured credit card, you will need to make a deposit of a sum of money (for this example, $750), and the band or credit union will give you a credit card with a credit limit of $750. You can then charge up to $750 on the credit card. Some secured credit cards allow you to charge a little over the amount you deposited right off the bat, but many do not.

If you pay off the balance on the card regularly and on time, the bank or credit union may extend you credit beyond the amount you deposited, but that will take time.

Most secured credit cards come with fees. Read all of the application – every word of it – and make sure you understand how much the fees will be before you sign up. Look for insurance fees, application fees, and annual fees. Find the secured credit card that will cost you the least and go with that one.

Some banks and credit unions will only extend credit – even in the form of a secured credit card – to people who are new to credit, excluding those who have poor credit ratings due to severe mismanagement of funds in the past. While this may discourage you, keep searching. Many lenders will give you another shot. Take the opportunity seriously and make sure you are never late with payments.

You may be shocked to hear you have to charge against your own money, but the reason to do this is to build that positive credit rating so you can borrow money from a credit card company in the future. You’re proving your trustworthiness. If you prove yourself with a secured credit card, you may get to move on to an unsecured credit card. This first stepping-stone can be the important first step on your path to good credit.