What is a secured credit card?
Unlike regular credit cards (unsecured credit cards), secured credit cards are bankrolled by you, not the card issuer. That means to open an account you’ll have to pay a security deposit that also serves as your credit limit, minus the fees. (If you deposit $400, then your credit limit is roughly $400.)
That makes secured credit cards far less risky for lenders. In turn, they don’t require an excellent credit score to qualify, and are a great tool for building or even repairing your credit history. If you use one correctly, you’ll also improve your credit score enough to qualify for a credit card with a rewards program.
No matter what type you have, always treat your card like cash
It doesn’t matter what type of card you have or what your credit limit is: Don’t spend more than you can pay in full every month. If you carry a balance from month to month, you’ll risk paying a bunch on interest charges and crippling your credit score — both of which can be a severe blow to your financial health.
What is a good credit score?
FICO® and VantageScore are the two most common types of credit scores. (There are several types of credit scores.) Each one has a slightly different rating scale, but a score of 700 and above is generally considered to be good. If your score is greater than 800, then you’re in excellent shape.
Keeping a healthy credit score is incredibly important in today’s economy. Having a low score can impact your ability to qualify for the loan you need to buy your first home or the vehicle you need to commute to work. And if you do qualify, having a low score means you won’t receive the best rate that you could get.
Can I get a secured credit card with bad credit?
If you have poor credit, or no credit history at all, secured credit cards are one of the best ways to build or repair credit. Secured cards require a security deposit, and that means the approval qualifications are more relaxed than other cards.
But that doesn’t mean you’ll always be approved. If your credit history is filled with red flags, like bankruptcy or multiple missed payments, it be difficult to get approved — even for a secured card.
Will a secured credit card raise my credit score?
It absolutely can, if used responsibly. Even though your deposit determines the credit limit with a secured credit card, it still has the potential to raise your score. This is because secured cards appear to credit bureaus like any other revolving line of credit. Just make sure you observe responsible credit use when making purchases and payments on your secured card. That means paying on time and, if possible, paying off your balance in full every month.
Will raising my credit score be faster or slower using a secured credit card?
In terms of credit building, a secured credit card is no different than using a nonsecured (regular) credit card. Used responsibly, you could begin to see your credit score improve in as little as six months.
Just be sure to keep your credit utilization ratio below 30%. Since secured credit cards use your deposit as the credit limit, it’s easy to feel like you can max it out without consequences. But if you have a $250 credit limit, a month-to-month balance of just $80 will increase your credit utilization above 30% and your credit score could be affected.
Will closing a secured credit card hurt my credit standing?
It could, depending on the situation and a couple of key factors. You could be penalized for reducing the average age of your active accounts if your secured credit card was the first account on your credit report. Additionally, if you are carrying any balances on other open accounts, closing your secured credit card might raise your average credit utilization. In some cases, pushing your utilization beyond 50% could negatively impact your score.
Here’s what to do if you’re denied
If you are denied credit, don’t fret. The first thing you should do is ask your lender why you were denied. If a lender denies you credit because of your credit report, the lender is required by law to provide you a free copy of that report. But if your denial is due to an error on your credit report, you can dispute the error.
If that proves unsuccessful, consider going to your local credit union. Many credit unions offer share-secured loans and credit builder loans, both of which are great for kickstarting credit repair. Call or visit the institution to see whether you qualify.
Share-secured loansShare-secured loans are similar to secured credit cards, but there’s no piece of plastic to put in your wallet. Once you deposit money into the account, you can borrow against it.
Credit builder loansInstead of getting a lump sum of money up-front like a shared-secured loan, you make regular payments that serve as a layaway of your money. Once you’ve made all the payments, you can access the loan funds.
For even more information about how to quickly repair your score, read our guide to building credit.
Best secured credit cards of 2018
- Capital One® Secured Mastercard® : Best for low fees
- Discover it® Secured : Best overall
- USAA Secured Card® Platinum Visa® : Best for military members and their families
- U.S. Bank Secured Visa® Card : Best for moving to an unsecured card
- First Progress Platinum Prestige MasterCard® Secured Credit Card : Best for low APR