- Secured credit cards are just like traditional credit cards, except they require a cash deposit to open.
- Secured credit cards are typically easier to qualify for, but they tend to have higher interest rates and fees.
- Both options help build credit.
- Secured credit cards are ideal for people who are beginners to building credit, have poor credit, or otherwise can’t qualify for a traditional card.
If you’ve struggled to get approved for a credit card, you’re not alone. Nearly 1 in 3 U.S. banks have tightened their requirements to open a credit card, leaving thousands of Americans with rejected applications. If you’re looking for another option, consider a secured credit card instead.
How Secured Credit Cards Work
A secured credit card is just like a traditional credit card, except it requires a cash deposit as collateral. If you fail to make payments, the credit card company will keep the cash. If you make payments on time, you’ll get the deposit back when you close the account.
Typically, the deposit you put down becomes your line of credit. For example, a $300 deposit means you may be approved to spend up to $300 on the card.
These cards are ideal for people who are new to building credit, have poor credit, or otherwise can’t qualify for a traditional card, like young people and immigrants.
Secured Vs. Unsecured Credit Cards
Credit cards are essentially small monthly loans. The credit card company agrees to lend you a chunk of money with the idea that you’ll pay them back in full and on time each month.
When you apply for a traditional credit card, the credit card company wants to be sure you’ll pay them back. So, they’ll check your credit history and make sure it looks good before they decide to work with you. For people with poor credit histories, this can lead them to be rejected.
Secured credit cards, however, are often intended for people with spotty credit histories. The cash deposit gives credit card issuers a sense of safety in what would otherwise be a risky investment. This makes them more apt to work with people who can’t qualify for traditional cards.
| Secured Credit Card | Unsecured Credit Card | |
|---|---|---|
| Deposit Needed | Yes | No |
| Credit Score Typically Needed | Open to people with lower credit scores | Need at least a good credit score |
| Credit Limit | Typically equal to the deposit you put down | Depends on your credit history |
| Average APR | Tends to be higher than unsecured credit cards | Varies depending on the card issuer and your credit history |
| Helps Build Credit | Yes | Yes |
Picking A Secured Or Unsecured Credit Card
Which option is better depends on your unique situation. Here’s a few pointers to help decide:
Secured credit cards are best for people who…
- Are brand new to credit.
- Have a poor credit score and are looking to rebuild their credit.
- Have been denied a traditional credit card in the past.
- Are denied traditional credit cards due to life circumstances (ie. immigrants, young people, people who have declared bankruptcy).
Unsecured credit cards are best for people who…
- Have some credit history.
- Need a higher credit limit to make larger purchases.
- Have experience effectively managing credit.
Pros And Cons Of Secured Credit Cards
If you have a rocky past with credit, or can’t qualify for a traditional card, a secured credit card can provide you with an effective way to build your credit. As with any financial product, though, there are a few pros and cons to be aware of:
| Pros | Cons |
|---|---|
| You may be able to upgrade to an unsecured card after making a certain amount of on-time payments. | You’ll need cash upfront to deposit. |
| Secured cards are often easier to get approved for than an unsecured credit card. | You’ll have a smaller line of credit than you would with an unsecured card. |
| You set your credit limit, which can help limit temptation to spend above your means. | You won’t get your deposit back if you miss a payment. |
| You may be charged an application fee. | |
| You’ll likely have a higher interest rate than an unsecured card. |
Frequently Asked Questions (FAQs)
Do Secured Cards Build Credit Faster?
It depends. Some users report seeing an increase within 6 to 12 months of using a secured credit card. However, this depends on the credit card company you work with and whether you make on-time payments each month.
Can You Get Denied For A Secured Card?
Yes. If a credit card company believes you are too risky to work with, you can be denied a secured card.
Do Secured Credit Cards Eventually Become Unsecured?
It depends. Some credit card companies will give you the option to upgrade to an unsecured card once you’ve made a specific number of on-time payments. Others, however, don’t have this option.
How Do I Get A Secured Credit Card?
First, compare your options. Review some of our secured credit card recommendations, and find the one that suits you best. Then, visit the credit card company’s website to apply.
