Why Someone Might Want a Secured Credit CardUpdated on January 30, 2022 Show
Photo: Hero Images / Creative RF / Getty One of the toughest times to get a credit card is when you have bad credit or no credit at all. The trouble is, you often need a credit card to start building a good credit history, but you also need a good credit history to get approved for many credit cards. If you can't get approved for a traditional credit card, a secured credit card is an alternative worth considering. Learn how secured credit cards work and whether one is a good fit for you. Key Takeaways
What Is a Secured Credit Card?Secured credit cards require a deposit that serves as collateral for purchases you make using the card. If you default on your payments, the card issuer keeps your deposit. Otherwise, as long as you keep your account in good standing, your credit card issuer will return your deposit to you after a certain number of months or when you close your account. NoteThe credit limit on your secured credit card typically will be equal to your security deposit. In some cases, your credit limit can be bigger than your security deposit, depending on the card you choose and your credit rating. How Does a Secured Credit Card Work?You can use the secured credit card just like you'd use any other credit card. Swipe it for purchases up to your credit limit, and make timely payments toward your balance each month. The application process is also the same as a traditional credit card. Card issuers review your credit history. If you're approved, you pay your security deposit. Pros and Cons of Secured Credit CardsPros
Cons
Pros ExplainedSecured credit cards can be a good option for building or rebuilding your credit. Five benefits stand out for consumers with blemished credit or no credit at all.
Cons ExplainedWhile secured credit cards can be appealing for those who are trying to improve their credit scores, there still are a few disadvantages.
Frequently Asked Questions (FAQs)Which banks offer secured credit cards?Many banks and card issuers offer secured credit cards. If you have a preferred bank, consider asking whether they offer a secured credit card. Don't apply for a card without digging into the terms and conditions, however. Look at the APR, fees, and whether you can be transitioned to an unsecured card in the future. What are the top-rated secured credit cards?The Discover it Secured card, the Secured Mastercard from Capital One, and the Secured Visa from Merrick Bank are highly rated secured credit cards. Discover it Secured offers cashback rewards. The Secured Mastercard from Capital One has a low deposit requirement. The Secured Visa from Merrick Bank has a relatively low APR. How do secured credit cards help you build credit?Card issuers report your payment history and credit utilization to the credit bureaus. Paying on time and keeping a low balance on your card can improve your credit score. The key to using a secured credit card to build credit is to use it responsibly. The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Does a secured card do a hard pull?Yes, applying for a secured card does count as a hard inquiry most of the time.
Are secured credit cards a good way to build credit?Secured credit cards are a special type of card that requires a cash deposit to insure purchases made with the card. Provided your lenders report your payment history to the three nationwide consumer reporting agencies, a secured credit card can be a powerful tool for building and improving credit.
Do Secured cards run a credit check?The OpenSky® Secured Visa® Credit Card is a traditional secured credit card ideal for those with poor credit. Among secured credit cards, it's one of the few that lets you qualify without a credit check or bank account. It reports payments to all three credit bureaus and lets you carry an ongoing balance.
What are the disadvantages of a secured credit card?Disadvantages of secured credit cards
Often charge higher interest rates and a higher annual fee: You can mitigate this downside by looking for a no-fee card and by making sure you don't carry credit card debt from month to month. You have to make a cash deposit: This ties up your money with the credit card company.
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