Best Secured Credit Cards

So, first things first, what exactly is a secured credit card? 

A secured credit card is a type of credit card for those who have damaged credit or limited credit. This type of credit card requires the user to place a refundable security deposit down when applying for the card. This security deposit acts as collateral until the account is closed. Once cardholders close their secured credit card account, they’ll receive your money back in full. 

The reason banks and credit unions require this deposit is so they’re not taking a huge risk when issuing credit cards to inexperienced or previously irresponsible applicants who had trouble with on-time payments. If something goes wrong and the user can’t pay their card off, then the card issuer will just keep the deposit. 

Because of this setup, secured credit cards tend to have higher approval ratings than other types of unsecured cards. So, if you’ve been denied a regular credit card and would like to work on building your credit, this is an excellent solution. 

Another important thing to know about secured credit cards is that they’re indistinguishable from regular credit cards on your credit report. In other words, nothing will be held against you on your credit score or FICO score for using this type of card.

This means that unlike a debit card or prepaid card, the credit card issuer is able to share your credit activity, such as your monthly payment history, with all of the major credit bureaus (Experian, Equifax, TransUnion), which will help you build credit as long as you pay on the due date each month.  Building credit will improve your creditworthiness to allow you to graduate to an unsecured credit card down the line. 

Credit building is really the key to secured cards as they allow you eventually increase your available credit with a higher credit line and graduate to cards that offer lower interest charges and don’t have a required security deposit.  

It’s also important to note that secured credit cards generally don’t give you the ability to actually borrow money from the issuing institution. Typically, these cards are fully secured, which means that your spending limit won’t exceed the amount you deposit (aka, your credit line). Finding a partially secured credit card offer is actually very rare. 

Secured credit cards (sometimes referred to as prepaid cards) basically work the same way normal credit cards do, with the only unique thing being that you have to pay a security deposit to the financial institution when applying for one. 

Typically, the deposit you put down doubles as your spending limit, so this way you’re unable to charge more than you can repay. For example, if you put down a $1000 deposit, your initial credit line on your secured card will be $500. 

In this sense, you’re not really borrowing anything with a secured card, as you have the deposit to cover anything you can’t pay. But, this is why the cards are easy for people to use, even those with bad credit. 

Here’s a rundown of what it’ll look like when you get a secured credit card:

• You use a balance transfer to place a refundable security deposit down- Some require you to do this when you apply, others have you wait until you’re approved. The typical deposit minimum is $200 to $300
• The amount you deposit then determines your spending limit/line of credit 
• The credit card company or major credit bureau holds onto the deposit as collateral
• You make purchases and payments the same as you would with any other card
• Once you close the account, you get your deposit back

Typically, it takes about 12 months of using a secured credit card to graduate to an unsecured credit card.