Secured Credit Cards

If you’re considering getting a secured card, you’ve come to the right place. The following is a comprehensive guide we created to help you learn about these cards, including the benefits and drawbacks of using one and how they can help you build or improve your credit score. You’ll also learn about the security deposit requirements, limitations, rewards, common mistakes to avoid, what to look for when choosing a secured credit card, what to do if your application is denied, and much more. Read on to gain a clear, detailed insight into secured credit cards so you can make an educated decision about getting one.

List of Available Secured Cards

• Applied Bank® Secured Visa® Gold Preferred® Card
• First Progress Platinum Elite Mastercard® Secured Credit Card
• First Progress Platinum Prestige Mastercard® Secured Credit Card
• First Progress Platinum Select Mastercard® Secured Credit Card
• GO2bank
• Merrick Bank Secured Credit Card
• OpenSky® Secured Visa®
• PCB Secured Visa® Credit Card
• Sable One Secured Mastercard®
• Secured Chime Credit Builder Visa® Credit Card
• Self – Credit Builder Account + Secured Visa® Card
• Surge® Platinum Secured Mastercard®
• The First Latitude Platinum Mastercard® Secured Credit Card

Why Do People Get a Secured Credit Card?

It can be challenging to get a credit card if you have no credit score. Getting approved can be even more challenging if you have a poor credit history. Past mistakes can follow you well into the future, raising flags and preventing you from getting a loan when needed. To establish good credit, you need a credit card. However, you can’t get a credit card if you don’t have good credit. It’s a real catch, so what can you do?

You can get a secured credit card to improve your existing credit score or build a new one from scratch. This is precisely why people get these cards. If you’re a subprime borrower, that is, if you carry a high credit risk for lenders, you can quickly get a secured credit card and start building or strengthening your credit score.

How Does a Secured Card Work?

As mentioned, a secured credit card is used to build or rebuild credit. You use it just like a regular credit card but must make a security deposit first. Your card issuer requires the deposit as collateral to fall back on so that they have a guarantee that they won’t lose money if you fail to pay back the amount you borrowed. The primary purpose of these cards is to help you build or improve your credit score to the point where you’ll qualify for a regular, unsecured credit card. Once you do, you can get your security deposit back.

10 Essential Things You Need to Know About

Now that you know what secured credit cards are and their primary purpose, consider their key aspects to determine whether or not they’re right for you.

1. Who Can Get a Secured Credit Card?

Secured credit cards are made specifically for individuals who either have bad credit or need to improve or have no credit history. Therefore, a secured credit card is an excellent choice for:

• People with no credit history – If a borrower has no credit history that a lender can use to make a risk-free decision, they can apply for a secured credit card and start building their credit. This will help them create a credit history that lenders can use to determine whether or not the borrower can effectively handle a loan.
• People with a low credit score – If a borrower has made mistakes in the past, that is, failed to repay their debt on time, they have a low credit score. A low credit score indicates bad credit, so lenders are unwilling to lend money to high-risk borrowers.
• Students – While students are eligible for credit cards, getting a secured credit card can be a smart choice for building good credit. They can have more than one account (tradeline) on their credit report, which helps establish good credit.
• People who have declared bankruptcy – If someone has declared bankruptcy in the past, getting a secured credit card with no credit check is a great way to improve their credit score.

2. How Long Does It Take to Create a Secured Card?

Creating a secured credit card doesn’t take longer than a couple of days. The process is straightforward, as all you need to do is choose your secured credit card issuer and submit an application. To apply for the card, you need to provide your personal information (name, address, social security number, etc.), as well as your income and employment information. The issuer will then take several days to thoroughly check your credit score to see if you may have any unpaid debts.

If you meet all the requirements, you’ll get your approval. You must then provide a mandatory deposit equal to your credit limit as collateral. Once you do, you’ll instantly have your account, but you’ll have to wait for your card to arrive in the mail within 2-3 weeks following the approval.

Some secured credit card issuers don’t report to all three major credit bureaus (Equifax, Experian, TransUnion), so check whether your chosen issuer does. Find one that will report your good behavior every month. Reporting to all three major credit bureaus is crucial for building or improving your credit score, as your credit report will include your entire payment history.

3. What Are the Advantages?

Secured credit cards have some excellent advantages over their unsecured counterparts. Here are the most important ones to consider.

• A Very Easy and Quick Approval Process. Apart from proof of no unpaid debts, all you need to provide to obtain a secured credit card is a security deposit. This is precisely why the approval process is swift and straightforward. By getting the required deposit, your issuer eliminates any potential risk that could negatively affect them since they can keep your money if you fail to provide payments on time.
• The Deposits You Make Can Be Refunded. Apart from the initial mandatory deposit, you can make more deposits later to increase your credit limit. Whatever the case, your card issuer will refund all your deposits once you’ve entirely paid off your balance and closed your account, provided that you’ve made all your payments on time.
• Reasonable and Affordable Fees. Average annual fees (during the first year) for secured credit cards range from $ 29 to $ 49+. Most secured credit cards come with much lower annual fees for subsequent years. However, there are also secured credit cards with absolutely no annual fees. There are other fees to consider, but they’re very reasonable and affordable.

4. What Are the Disadvantages?

Although secured credit cards have significant benefits, they have a few disadvantages worth considering.

• An Advanced Deposit Is Mandatory. As you know, you must deposit to obtain a secured credit card. Although you’ll get it back once you pay off your balance in full, you still need to provide it upfront. This can be a deal-breaker if you don’t have the necessary money.
• A Low and Restricted Credit Limit (in most cases). Another disadvantage of secured credit cards is a very low credit limit. The limit usually ranges between $300 and $ 500, but some issuers allow a much higher credit limit. This limit is determined by the deposit you put down in the first place. If you put down a deposit of $500, your credit limit will be $500. You can increase your credit limit by putting down more deposits. How big a payment you would need to make depends partly on you and partly on your credit card issuer, as each allows different minimum and maximum deposits. However, some providers will enable a credit line increase after a particular period of on-time, full payments. So you might not need to make additional deposits to increase your credit limit.
• It’s Not A Magic Spell. To optimize your credit score, you must maintain a good balance and credit utilization ratio. This means you should use less than 30% of your total credit limit every month. For instance, if your limit is $400, keep your balance below $120. If you go over it, your credit score can significantly drop.

GOOD READ: 7 Wrong Ways to Use Secured Credit Cards

5. How to Cancel a Secured Card

When you reach a point where your credit score is good enough to qualify for an unsecured credit card, you can close your secured credit card. However, closing it may not be a sage choice because it could hurt the good credit score that you’ve struggled to build. Your good payment behavior would stay on your credit report for 10 years, but you would lower the average age of your accounts.

It could also negatively affect your credit utilization ratio. It could raise your debt-to-credit ratio and hurt your credit score. So, the best decision might be to keep the card until you build more credit with several more cards. That way, you can keep improving your credit score and use the card to save money. You can also have peace of mind if you ever lose one of your other cards, as you would have your secured card at hand.

6. Can I be Denied a Secured Card?

Unfortunately, yes. It is not typical for a secured credit card issuer to reject a card request, but it is possible. If you have terrible credit due to a history of not paying off your debts on time and as a whole, an issuer may choose not to approve your request. Of course, your deposit would serve as collateral, but some issuers still decide not to take any chances. Also, a recent or pending bankruptcy or a history of bankruptcies could disqualify you from getting a secured credit card. A single bankruptcy can stay on your credit score for up to 10 years, which isn’t something credit card issuers would overlook.

Also, find a credit card provider who doesn’t check your credit score if you’ve ever declared bankruptcy. If your request gets rejected, don’t hesitate to ask why. You have the legal right to know, which will help you get approval next time. (RELATED: Indigo Unsecured Mastercard – Prior Bankruptcy is Okay)

7. How Are They Different Than Unsecured Credit Cards?

Here’s a chart to help you understand how secured credit cards differ from unsecured ones.

Secured Cards

• Security deposit required
• Include annual fees, usually
• High-interest rates
• Low credit limit
• You set your credit limit
• You can increase your credit limit by depositing more and providing complete, on-time payments.
• Accept low credit scores.

Unsecured Credit Cards

• No security deposit required
• Usually, no annual fees
• Usually, lower interest rates
• Higher credit limit
• Your debt-to-income ratio determines your credit limit
• Your lender may increase your credit limit once you build a good credit score
• Require average or excellent credit

8. Can a Secured Credit Card Fix My Credit Score?

Yes, it can. That’s the whole purpose of secured credit cards. If you have a bad credit score, you can repair it quickly with a secured card. All you need to do is provide all your payments on time and in full monthly. You will damage your credit score if you’re late with the payments. Repairing your credit score takes about 3-5 months of full, on-time payments. If you miss a payment, the recovery time can increase to 18 months, negatively affecting your credit score.

You’ll also have low monthly bills to pay, so you won’t have to worry about not being able to make full payments.

9. What Should I Look for When Choosing One?

Choosing the right secured credit card is vital for building or rebuilding your credit score. The factors to consider when choosing one include:

• Minimum deposit – If you don’t have much money to pay upfront, look for a card that requires a low security deposit. The lowest required security deposit is around $49.
• Maximum deposit – If you want a higher credit limit, find a card that requires a higher security deposit. Many secured credit cards allow a limit of up to $5000, but several allow an even higher limit – up to $10000.
• Fees – As with any other credit card, a secured credit card includes different fees, such as for application and processing, so make sure you compare different cards to find the most affordable one. They can also include annual fees, but that’s not always true. Find a card with low fees and no annual fees because the goal is to build or repair your credit score so that you can upgrade to an unsecured credit card.
• Interest rates – You won’t have to worry about interest rates if you provide on-time, full payments every month. However, choose a card with low interest rates to be on the safe side. You won’t potentially get into debt or hurt your credit score.
• Credit checks – Look for a provider who doesn’t conduct credit checks before issuing a secured credit card if you’ve ever declared bankruptcy. Such providers often have high interest rates, but shop around for a thorough comparison, or never miss a payment once you get your card.
• Reporting to the major credit bureaus – Make sure your chosen credit card issuer reports your activity to the three credit bureaus every month, which will help you build good credit quickly.
• Reputation – You should choose a reputable provider so that you don’t fall for a scam or pay higher fees and interest rates to a sketchy bank.

10. How Should I Use My Secured Credit Card?

To use your secured credit card wisely and effectively build a good credit score, you should:

• Always pay on time – Paying monthly is crucial for your credit score. If you don’t pay on time, your score will tank drastically. If you’re a day late, it may not negatively affect your score, but you’ll probably need to pay a fee. Also, your card issuer may not report you as late to the credit bureaus immediately. But if you’re consistently late, even by a single day, you’ll have trouble building a good enough score to upgrade to an unsecured credit card.
• Always pay in full – Paying your monthly bills shows responsibility and a good money habit, which credit bureaus need to see. Moreover, it helps you avoid interest fees and saves you money in the long run.
• Make small purchases every month – This is the so-called “candy bar method,” meaning that buying even a single candy bar each month helps you build a good credit score. You should make multiple small purchases to keep a good credit utilization ratio.

What are the Main 2 Reasons for Having a Secured Card?

The main reasons why you should consider getting a secured credit card are:

1. You have a bad credit score and want to improve it, or
2. You have no credit history and want to establish it from scratch.

How Does a Secured Credit Card Improve My Credit Score?

Making all your payments on time and in full shows that you’re a responsible, creditworthy borrower. Your good payment history is reported regularly to the major credit bureaus, which puts your good behavior in your credit report, thus raising your credit score.

What are Secure Card Limitations?

You get a low credit limit (set by your security deposit) and accrue higher interest rates if you don’t make full, on-time payments every month. You can increase your credit limit by making additional deposits, or your issuer may choose to increase it after a particular period of your good payment behavior.

What are Secured Card Alternatives?

Credit builder loans, merchandise accounts, starter credit cards, and student credit cards (only for students) are the best alternatives to secured credit cards.

Bottom Line

As you can see, secured credit cards are an excellent choice if you have a bad credit score or no credit history. It can help you build good credit from scratch and repair your existing credit reasonably quickly. Using these cards has some disadvantages. Still, the pros outweigh the cons, especially when you don’t qualify for an unsecured credit card. They are a great way to build good credit and take your financial situation to the point where you can use regular credit cards. If you want to learn more about secured credit cards and how they can maximize your credit score, check out our Secured Cards Explained.

Frequently Asked Questions