Best Secured Credit Cards

What Is a Secured Credit Card? A secured credit card is a type of credit card for people with limited or damaged credit that requires the user to place a refundable security deposit, which the card’s issuer holds as collateral until the account is closed. This deposit makes it less risky for banks and credit unions to issue credit cards to inexperienced applicants and people with a history of payment problems. If something goes wrong, the issuer can just keep the money. As a result, secured credit cards offer the highest approval odds of any type of credit card. And they don’t need to charge the same high fees as unsecured credit cards for bad credit. A secured credit card can help you build or rebuild your credit, just like a “normal credit card.” In fact, secured credit cards are indistinguishable from unsecured cards on credit reports. All major secured cards report account information to the major credit bureaus on a monthly basis. And if that information reflects on-time payments, your credit standing should improve, assuming you manage the rest of your finances responsibly. The one thing a secured credit card generally won’t give you is the ability to actually borrow money. Most secured credit cards are fully secured, which means your spending limit will equal your deposit amount. It is very rare to find a partially secured credit card, which gives you a line of credit in excess of the amount that you put down. So a secured card is not where you should turn for emergency financing. But you should definitely get a secured credit card if lost-cost credit improvement is your top priority. How Secured Credit Cards Work: You place a refundable security deposit using a bank transfer. A debit card or check could be an option, too, depending on the card. Some secured cards require you to place a deposit when you apply, others after you’re approved. The minimum deposit for most secured cards is $200 or $300. The amount of your deposit becomes your spending limit. This prevents you from spending more than you can afford to repay, which benefits both you and the card issuer in the long run. For what it’s worth, you can usually add to your deposit over time for more spending power. The credit card company holds your deposit as collateral. The funds are usually kept in a custodial account that does not bear interest. Purchases and payments are the same as with any other credit card. You can spend up to your credit limit. You’ll have to pay your bill by the due date each month. And any balance you carry from month to month will accrue interest. You get the deposit back when you close your account. You’ll have to bring your account balance to zero first. But after you do (or the issuer subtracts what you owe), you’ll get a check or bank transfer returning your deposit money. After using a secured credit card responsibly for at least 12 months, you should be able to graduate to an unsecured credit card. Your secured card’s issuer might even offer to convert your account to unsecured by giving back your security deposit. If your card doesn’t charge an annual fee, you should definitely consider keeping it open. This would help make your credit history appear longer, benefitting your credit score. But you should still shop around to see if you qualify for a better card to use on an everyday basis.

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