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A secured credit card requires a security deposit to act as collateral for the line of credit. They are designed for people with limited or damaged credit who want to establish or rebuild their credit history. To help build your credit (and to avoid interest charges), pay your balance in full every month before the due date.

Benefits of secured cards include:

  • Good for people with limited or damaged credit
  • Easier to qualify
  • Credit reporting
  • Refundable security deposit
  • Avoidable interest rates
  • Transition to unsecured account

Drawbacks of secured cards include:

  • High fees and interest rates
  • Security deposit
  • Low credit limits

While many secured cards charge high interest rates, it is still possible to find low APR credit cards or avoid paying interest altogether. Thus, if you pay off the card balance in full each month, you won't be charged any interest.

A secured card requires a security deposit upfront, where the initial deposit can be somewhere between $100 and $400. This deposit determines your credit limit. Some issuers allow cardholders to increase their deposit up to a certain amount and with the deposit grows the available credit limit.

The security deposit is usually refundable, and there are secured cards with rather low fees and good customer service. Just make sure you do your research to find the one that is right for you. For example, the opensky® Secured Visa® Credit Card will refund your deposit when you pay off the card and close it (provided the deposit hasn't been used). The card also reports credit activity to all three major credit bureaus, allowing you to build your credit quickly.

Some secured card issuers allow cardholders to upgrade their secured cards to unsecured accounts without closing them. For example, the Discover it® Secured Credit Card may be switched to an unsecured line of credit starting at 7 months. When you upgrade your account, your deposit is also refunded, provided it hasn't been used.

If you are a high-risk borrower or struggling to establish or build your credit history, a secured credit card might be a good option for you. Just make sure you can pay the upfront deposit. Once you have a secured card, use it responsibly and pay what you owe on time.

tags : Credit Score Fees Limited Credit Secured Cards Credit Report

Disclaimer: This editorial content is not provided or commissioned by the banks or credit card issuer(s). Opinions expressed here are the author's alone, not those of the banks or credit card issuer(s), and have not been reviewed, approved or otherwise endorsed by the banks or credit card issuer(s). Reasonable efforts are made to present accurate info, however all info is presented without warranty. Consult with the issuing bank of the card or account for terms & conditions.
All rates and fees, and other terms and conditions of the products mentioned in this article/post are accurate as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.