Those who have bad credit — or no credit — may be paying a high price for borrowing: high-interest rates on credit lines, rejection on new loans and maybe even trouble securing an apartment lease.
The simple answer is to establish a good credit score, but accomplishing that is often not so simple. A secured credit card can help.
What makes a secured credit card different from traditional credit cards? "It's a credit card where people are securing their credit lines with collateral, in which case it would be a cash deposit," said Barbara O'Neill, personal finance professor at Rutgers Cooperative Extension. "Basically, you are funding your own credit line."
Secured cards are particularly well suited for those with bad credit or no credit history — people who are starting from scratch or starting over. It's also an alternative for those without another adult to act as a co-signer on a new card.
The credit line on a secured credit card is usually for the same amount of your deposit, though it can be higher. For example, if you give the lender a $300 deposit, you will get a $300 credit line. If you default, the lender keeps your deposit. Otherwise, your deposit gets returned when you close the card.
Read More4 ways to improve your credit score
"The deposit reduces the lender's risk," O'Neill said.
It's similar to using a prepaid card or debit card in some ways, but there is an important difference. With a secured credit card, your credit behavior will be reported to the three main credit bureaus: Experian, Equifax and TransUnion.
"If you're interested in building your credit, you need to prove your credit worthiness," said Sean McQuay, a credit card associate at NerdWallet. A secured credit card is a simple way to do that, he added.