If you have a poor credit history, or don’t have a credit score at all, a secured card might be your best option for restoring or building financial health. Most secured cards require you put down a security deposit which typically serves as your credit limit. This security deposit also serves as collateral for your credit card provider in the event you miss payments.You can use your secured card responsibly and pay your balance in full each month to start improving your credit score and graduate to an unsecured credit card.
Secured credit card comparison
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Choosing the right secured credit card is important for making sure you end up with a card that will help you rebuild your credit score. Once you’ve reviewed your options, follow these simple steps to applying for a secured card.
Minimum security deposit. If you don’t have a lot of money to put toward a security deposit, you’ll want a secured credit card that will allow you to pay a low security deposit. You’ll be able to get a secured credit card without having to come up with a lot of money.
Maximum security deposit. Perhaps you have several thousand dollars and want a secured credit card with a large credit limit. In this case, look for a secured credit card that requires a high security deposit. Some providers limit the security deposit to $5,000, but there are a few that allow security deposits as high as $10,000.
Annual fee. Annual fees are fairly common with secured credit cards. When you compare secured credit cards, look for one with a low or no annual fee.
Interest rate. Ideally, you will pay your balance in full each month. This is the best way to build up your credit score and avoid getting into debt. If there’s a chance that you’ll carry a balance rather than pay in full each month, choose a secured credit card with a low interest rate.
Reporting to the major credit bureaus. The goal of having a secured credit card is to build a new credit history or rebuild a bad credit history. However your goal may be to prove that you can manage money on a low income. Having a card that reports your account details to Equifax and TransUnion is a must. This way, your payment history will be included in your credit report and will help improve your credit score and ultimately your chances of being approved for a different credit card in the future.
Upfront fees. The best secured credit cards do not charge any upfront fees. You’ll only have to pay your security deposit to receive your credit card. Tread carefully with any credit card that asks you to pay additional fees to get the card.
The credit card provider. Picking a secured credit card from a major credit card provider is often a safe choice. Choose a secured credit card from a well-known, reputable credit card provider to avoid falling for a scam.
How a secured credit card can help you build credit
Secured credit cards play an important role in helping you build or rebuild your credit. They’re a useful first step on your journey to better credit and they stand to bolster several of the financial areas lenders will look at when considering your credit applications.
By making on-time payments and paying your balance in full, you can improve your credit score over the course of a year or two. Having a secured credit card also helps to improve your credit utilization ratio, as long as you keep your spending to less than 30% of your credit limit.
Yes. While uncommon, particularly poor credit or a history of bankruptcy or other financial mishandling can disqualify you from obtaining a secured credit card.
No. While the initial application may temporarily affect your credit score by a few points because of the hard inquiry performed by the provider, actively using a secured credit card will improve your score (provided you use it responsibly).
Kevin Joey Chen is a credit cards writer at finder.com. He's passionate about helping you get your finances in order and travel the world like a pro. He's taken an extended trip around Europe as a digital nomad, gaining firsthand experience with exchange rates, ideal (and not-so-ideal) credit and debit cards, foreign transactions and budgeting strategies. He earned his BA from UC Davis and has written across many niches at Finder, including cryptocurrency, personal loans, car insurance, real estate and money transfers.
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