Ultimate Guide to Secured Credit Cards

Everything you need to know about finding a secured credit card.

Love them or hate them, credit cards are practically a necessity nowadays. Don’t agree? Try making a hotel or plane reservation, renting a car, or going shopping online without a credit card. You will soon see how biased our world is against people who don’t have credit cards. So what can you do if your credit score doesn’t qualify you for a regular credit card?

A secured credit card may be the answer, as it can help you establish or rebuild your credit.

What is a secured credit card?

Unlike a regular credit card, a secured card requires a cash deposit to secure your credit line.

This provides a safety net for the card issuer because your deposit serves as collateral—it’s used to reimburse the lender if you default on your payments.

Your credit limit will be determined by the amount you deposit. Most lenders usually subtract your annual fee from the available credit line, and the rest is free for you to use. 

Other than that, you’ll have the purchasing power, convenience, and flexibility of a regular credit card.

And, like a regular card, you’ll have a monthly payment, an interest charge, fees, and the lender will report monthly to the credit bureaus. 

Compare interest rates, fees, minimal deposit requirements, and maximum credit line limits when shopping for a secured credit card.

What are the benefits of a secured card?  

As mentioned above, a secured credit card is a great tool for building and repairing credit. But it’s not just about getting a higher credit score. Secured cards give you the chance to build a relationship with your bank or credit union as well. 

The goal of applying for a secured card is to improve your credit so you can later apply for regular unsecured credit cards. Unsecured cards don’t require a deposit and offer better benefits and perks.

If you show that you’re responsible with your money, pay your bills on time, and carry a low balance, you may qualify for an unsecured card sooner than you could otherwise.

How to apply for a secured credit card

Here’s a quick step-by-step overview of how to obtain and benefit from a secured card:

  1. Check your credit score.
  2. Shop around and compare offers.
  3. Pick your top card and fill out an application.
  4. Fund your deposit.
  5. Receive a decision (if approved, you’ll receive your card; if denied, your deposit will be refunded).
  6. Use your card however you wish.
  7. Make on-time payments every month.
  8. Monitor your credit score and watch it increase.
  9. Start shopping around for an unsecured credit card.

Does everyone get approved for secured credit cards?

It is much easier to qualify for a secured credit card than a regular unsecured credit card. However, it is possible to get denied.

Credit-building methods

It may come as a surprise that a card issuer would deny a secured card application. After all, doesn’t the deposit guarantee you will repay the balance if you don’t make payments? True, but this is still a credit application. Most card issuers will still check your credit report. If you have a recent bankruptcy on your record—bankruptcies stay on your credit for up to 10 years—or a history of missed payments, you could get denied.

If your secured application is denied, don’t worry. There are other ways to build your credit that don’t require a secured credit card.

Why was I denied a secured card?

Banks, credit unions, and other credit card issuers will usually check your credit report before approving an application. If you have red flags on your credit report, such as a bankruptcy, missed payments, or a foreclosure, you could be denied credit.

However, you have the legal right to know why were denied credit. Ask the credit card issuer why it denied your application. If a lender denies you credit based on information from a credit report, you’re entitled to a free copy of that report.

Check your credit report before applying again with another card issuer to check for errors and inaccuracies. If you find an item in your report that is not accurate, disputing it could help improve your credit.

Secured vs. prepaid debit cards

Many people confuse secured credit cards with prepaid debit cards.

Both cards are designed for subprime borrowers and require an initial deposit. But there are significant differences which are important for you to understand.

A prepaid debit card is basically the same as having a debit card attached to a checking account. You’ll load your own money onto the card, which is what you’ll use to make purchases rather than money borrowed from the issuer.

Since prepaid debit cards don’t extend credit, the account isn’t included in your credit report. In other words, it won’t help you build your credit score.

So if your goal is to build or repair your credit, a secured card is a better choice.

Find the best secured credit card

The best secured credit card for you will depend on how you use it. For example, if you regularly carry a balance on your card, you’ll need a card with a low interest rate. 

But if you pay your balance in full, your interest rate won’t have much of an impact on your account. If that’s the case, focus more on finding a card that doesn’t require you to pay an annual fee.

You’ll also want to pay attention to what kind of rewards and perks various cards offer. 

And it’s vital that you make sure the issuer regularly reports to all three major credit bureaus, otherwise it defeats the purpose of using the card to build your credit. 

Compare personal credit cards side-by-side to find your best offer.