Should You Get a Secured Credit Card?

When you look at your credit score and see a not-so-flattering number, you have reason to worry that you might not qualify for the credit card you want (or need). 

Thankfully, bad credit borrowers have more credit options to choose from than outright predatory payday loans.

Like a secured credit card, an entry-level tool for people with no credit (like international students) or and folks with impaired credit. You’ll need to provide a deposit to get a secured card, but if you can do so, you could help build or improve your credit in no time. 

Reasons You Should Get a Secured Credit Card

Secured credit cards can help you dip your toe into the credit card world, but they’re definitely better for some credit card holders than others. 

If you’re considering a secured credit card, these are some of the reasons you might want to get one. See if any apply to your situation. 

1. You May Not Need a Credit Check

Some secured credit cards don’t pull your credit report when you apply because the required down payment is security enough. You’ll have a more limited selection of cards if you limit your search to those that don’t pull credit, though. Big names like Discover and Capital One require credit checks for their secured products.

Nevertheless, since you presumably don’t have stellar credit and are looking to build it, a secured credit card with no credit check required is a better option than a small personal loan or other options that do require this step. 

Just know that the secured cards that don’t pull your credit often come with an annual fee or other unnecessary fees. The OpenSky Secured credit card is a good example. While OpenSky won’t check your credit when you apply, they’ll charge you a $35 annual fee as long as you have the card. 

2. It Can Help You Build Credit

Secured credit cards allow you to build credit relatively quickly. Assuming you pay your bill on time each month and prove yourself to be a reliable borrower, your score could tick up in just three to six months, though perhaps not all the way to “good credit score” territory.

3. It Can Raise Your Credit Score

If you’ve taken out a lot of loans in a short period of time, you haven’t paid bills on time on multiple occasions, or you have a high debt-to-income ratio (credit utilization ratio), your credit score has probably dropped substantially over time. 

Luckily, you can fix your score with a little bit of hard work. You can use a secured credit card to improve your credit score just like those with no credit do. Just make sure you can handle the extra available credit and pay your bill on time, no matter how small the credit line is.

4. It’s Easier to Get Approved 

Secured credit cards rarely require you to have good credit to qualify. In some cases, you don’t need any credit history at all.

Because secured cards are designed to help you build credit, they’re much easier to qualify for — though approval is by no means guaranteed. You can be denied a secured card if you have insufficient income and can’t pay the minimum required deposit, for example 

5. You May Be Able to Earn Rewards or Cash Back 

Most secured credit cards don’t have rewards programs. That’s not their purpose, after all — they’re made for building or improving credit. 

A select few secured cards do offer cash back rewards though. The Discover it® Secured Credit Card, for example, offers 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter. Plus, you’ll get an unlimited 1% back on everything else. 

6. Using It May Qualify You for an Unsecured Credit Card

Some credit card issuers, such as Capital One, automatically evaluate your credit profile and payment history after a period of time (often six months) to see if you’re ready for an unsecured card. 

This likely won’t affect your credit score, and if you make the grade, it means you’ll be able to graduate to a card that offers more premium benefits. And you’ll get your initial deposit back once you no longer have your secured card, assuming your account was closed in good standing. 

Reasons You Shouldn’t Get a Secured Credit Card

While secured credit cards can help those with little to no credit build their credit score slowly, there are times when a secured credit card might not be the best tool. 

For starters, those who know they may have a hard time not overspending should avoid using any type of credit card until they can address that problem. You might also want to hold off if any of the following situations apply to you.

1. You Can’t Save Up a Security Deposit

Cash deposits for secured credit cards often start at $200 — a couple of hundred dollars you might not have right now. 

Plus, your deposit is typically equal to your credit limit. So, if you want a higher credit limit, you’ll have to put down a bigger deposit. Even if you can afford the $200 minimum deposit out of pocket, $500 or $1,000 might be out of reach.

2. You Can’t Afford the Annual Fee

In addition to a deposit, some secured credit cards also come with annual fees. These fees aren’t outrageous — the OpenSky® Secured Visa® Credit Card has a $35 fee, for example. But if money is really tight, you’d be forgiven for taking a pass.

3. You Don’t Want a High Interest Rate

No credit card company offers a line of credit out of the goodness of its heart, especially when it comes to low-credit products. 

Sure enough, secured credit cards generally have higher interest rates than credit cards meant for users with excellent credit. You’ll likely pay over 20% in interest, while premium credit cards have interest rates in the low-to-mid-teens. 

4. You Qualify for an Unsecured Credit Card

Unsecured credit cards require no refundable deposit, often come with rewards, have lower interest rates, and also allow you to build credit with responsible usage. If you have a score above, say, 620 to 640, chances are you can qualify for some sort of unsecured credit card. 

The point of a secured credit is to graduate to an unsecured credit card in fairly short order. If you already qualify for an unsecured product, skip the first step and find an unsecured credit card that works for you. 

The Verdict: Should I Get a Secured Credit Card?

The difference between secured and unsecured credit cards mostly boils down to your credit score. 

If you have limited credit or no credit at all, don’t waste your time applying for premium unsecured credit cards you have no chance of getting approved for. Each time you apply for a credit card, your credit score takes a temporary hit. So get a secured credit card and demonstrate responsible use: make timely monthly payments, pay your balance in full each month, and keep your credit utilization under control. 

If you have a higher credit score, you have a better chance of qualifying for an unsecured credit card. That’s likely a better option as long as you can responsibly use your card. 

Why? Because unsecured credit cards offer better rewards and more flexibility. You can use a balance transfer credit card to pay off debt, get a card with a long 0% APR intro promotion to finance a major purchase, or use a travel rewards credit card if you’re frequently on the road. 

Alternatives to a Secured Credit Card

A secured credit card is not your only option for managing your finances if you have less-than-perfect credit. If you don’t want to pay a deposit or annual fee to get a secured card, here are a few other options to consider.

Student Credit Cards

If you’re a college student focused on building or rebuilding credit, unsecured student credit cards provide all the benefits of an unsecured credit card — just at a starter level. Since student credit cards are built with students in mind, many have modest income requirements. And while you may have to prove that you’re an actual student, you may qualify with a low credit score.

Many student cards come with rewards too. The Deserve EDU Student Credit Card offers unlimited 1% cash back, while the Capital One SavorOne Student Cash Rewards Credit Card offers unlimited 3% back on dining, entertainment, and grocery purchases, and popular streaming services. Pick a card that works best for your spending needs. 

Debit Cards

Any credit card requires you to spend and budget responsibly. If you don’t pay down your balance regularly, you’ll end up paying interest, drastically increasing the cost of your purchases. Debit cards prevent you from doing this because you can only spend what’s in your bank account and won’t incur interest on your charges.

Prepaid Cards

Prepaid cards come preloaded with a certain amount of money, sort of like a gift card, and you can only spend what’s on the card until you reload it. The limit is simply how much you load onto the card. 

Prepaid credit cards generally don’t have rewards programs, but they’re great for budgeting. Load one with your monthly grocery budget, another with your monthly gas budget, and so on. When you have no money left on a particular card, you know you’ve hit your budget limit for that specific category. 

Final Word

A secured credit card is a tool for people with bad credit to raise their score and prepare for a more prosperous future. It’s useful in many situations — but not all.

There are many secured credit card options on the market, but most do have initial deposit requirements and high interest rates. These fees may be worth it, as most responsible secured card users can graduate to an unsecured credit card within a year. Spend responsibly and you could find yourself among them.

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