Secured credit card use is booming
A surge of consumers, especially young adults without a credit history, are signing on for secured credit cards.
An abundant new generation of shoppers with no history of credit has helped bring secured credit cards out of the shadows and into the hands of consumers.
No longer a last resort – if available at all – for those who’ve been denied for an unsecured card, secured credit cards have come into vogue for their ability to help establish a healthy credit score. New secured credit card applications soared 21% in the latest two-year period while issuance jumped 15%, according to the Consumer Financial Protection Bureau’s annual Consumer Credit Card Market Report.
Backed by a security deposit, the cards protect lenders from the risks of a new borrower and report on-time payments to the credit reporting agencies. The majority of applicants – nearly three-quarters and growing – have deep subprime credit scores or no credit score, and 9 out of 10 cardholders have less-than-prime creditworthiness. Many are also under 35 years of age or new immigrants to the country.
As secured credit cards continue to grow in popularity, so too are the freedoms and benefits that come with them. For cardholders who consistently make their payments, some issuers are now willing to extend a credit line beyond the amount of the security deposit, making the account only partially secured, and other issuers (now up to 11%) have begun to offer rewards for using their secured cards, just like many unsecured rewards credit cards.
The average credit limit for new accounts is $450, though actual limits vary by credit score. Some cards are even offered without a credit check.
Learn much more about how secured credit cards work, how they’re different than unsecured cards and what options are available in our comprehensive guide. We’ve also put together a list of the best secured credit cards out there for you to choose from.