Guide to secured credit cards

Secured credit cards are extremely rare in the UK, but this is how they work and some of the alternatives you can consider.

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Secured credit cards, where you pay a deposit to the card issuer up front, are designed to help rebuild a poor credit history. They’re available across the pond in the US but are not so common in the UK anymore, although Capital One has issued secured cards in the past. Don’t despair though: there are card issuers out there which offer cards specifically designed for those with bad credit – designed to help turn a credit record around.

What is a secured credit card and how does it work?

Secured credit cards are designed for people with bad credit who want to build their credit score. These credit cards require a deposit, referred to as a “security sum”, which is held by the card issuer while you have the card, and returned to you when you close the account. Your credit limit is generally equal to the security sum that you put down when you apply.

Like any credit card, you’ll be required to make minimum monthly repayments towards any outstanding balance, and you’ll incur interest on any unpaid balance. However, there is an interest-free period if you pay your account off in full each statement period. Using the card to withdraw money from a cash machine will incur interest charges immediately.

If you’re offered a secured credit card, you’ll need to pay the security sum upfront before you receive the card. Your security sum can’t be used to make repayments, but if you fall behind on your minimum repayments, the card issuer could use some or all of your security sum to pay off any outstanding balances on your account.

Why would I want a secured credit card?

With a secured credit card, your monthly repayments are reported back to credit reference agencies, so provided you use your secured card responsibly (staying within your credit limit, making all repayments on time etc.) it’s likely to have a positive effect on your credit score.

Using a credit card rather than a debit/prepaid card also gives you access to purchase protection under Section 75 of the Consumer Credit Act for items individually worth £100-£30,000.

Secured credit cards can be a step in the right direction, but only if you have the money to pay the deposit in the first place. Once you’ve become a master of your credit handling capabilities and begin to see improvements in your credit score, you may no longer need to be tethered to a card with a security deposit – meaning you can apply for an unsecured card.

What are the alternatives for people with poor or limited credit?

Having a poor credit rating is more common than you might think. Whilst bad credit can reduce your chances of getting much-needed finance, the good news is that you have some options in restoring your credit rating and highlighting to lenders that you are responsible with money.
  • Credit builder credit cards. These cards are designed for people with a damaged or limited credit score, but unlike secured cards, don’t require money upfront. You build your credit score by simply using the card responsibly, and in many cases, can benefit from credit limit reviews after just 4-6 months. You’ll need to go through a credit check as part of the application process, but the card issuer won’t be expecting perfection. These cards do charge a higher interest rate than mainstream cards (due to the higher perceived level of risk involved) so you should aim to pay off the balance in full every month.
    Compare credit builder credit cards
  • Prepaid cards. With a prepaid card, you can decide how much money to “load” it with upfront, but there are usually a few limitations (such as an overall maximum, and a maximum amount you can withdraw in one go). Essentially, think of a prepaid credit card as a direct alternative to having cash in your wallet, which you use for day-to-day spending. Prepaid cards don’t normally have any effect on your credit record, because there’s no credit involved. However, a few innovative prepaid card issuers, such as Cashplus, do offer a credit-building service, but it comes at a cost. They do this by essentially lending you a year’s worth of account fees, which you’ll then repay in monthly instalments.
    Guide to prepaid cards
  • Other credit-building finance products. There are plenty of innovative “fintech” firms around that are always on the lookout for new ways to help people build their credit scores. Services like LOQBOX allow you to set up a direct debit to save a regular amount each month, which is then treated as if it were a finance repayment, with each repayment being reported to a credit reference agency. There are also schemes such as Rental Exchange which allow your rent payments to be reported back to credit reference agencies – demonstrating that you can responsibly meet regular payments.

LOQBOX

Build your credit history while you save with LOQBOX

  • Choose what you want to save – from £20 to £200 a month
  • Build your credit history with the credit reference agencies
  • Leave with an improved credit history, plus all your savings
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Compare credit builder credit cards

Table: sorted by representative APR, promoted deals first
Updated November 15th, 2019
Name Product Annual/monthly fees Min. credit limit Max credit limit Min income Rep. APR Incentive Representative example
£0
£250
Subject to status: £1,000
Not specified
24.7%
Stay in control of your account with online servicing, a mobile app, SMS and email alerts.
Representative example: When you spend £1,000 at a purchase rate of 24.7% (variable) p.a., your representative rate is 24.7% APR (variable).
£0
£500
Subject to status: £1,500
£15,000
24.9%
No fees for making purchases or withdrawing cash abroad – currencies are converted at the standard Mastercard exchange rate.
Representative example: When you spend £1,200 at a purchase rate of 24.9% (variable) p.a., your representative rate is 24.9% APR (variable).
£0
£250
Subject to status: £1,000
Not specified
29.3%
Representative example: When you spend £1,000 at a purchase rate of 29.3% (variable) p.a., your representative rate is 29.3% APR (variable).
£0
£250
Subject to status: £1,000
Not specified
29.8%
You could get a credit limit increase after your 5th statement and further increases every 5 months, up to £4,000.
Representative example: When you spend £1,000 at a purchase rate of 29.84% (variable) p.a., your representative rate is 29.8% APR (variable).
£0
£150
Subject to status: £1,000
Not specified
39.9%
Representative example: When you spend £1,000 at a purchase rate of 39.94% (variable) p.a., your representative rate is 39.9% APR (variable).
£0
£500
Not specified
Not specified
26.9%
Representative example: When you spend £1,200 at a purchase rate of 26.95% (variable) p.a., your representative rate is 26.9% APR (variable).
£0
£250
Subject to status: £1,500
£5,000
27.5%
Collect 1 Tesco Clubcard point per £4 spent (£4 minimum) in Tesco and 1 Clubcard point per £8 spent (£8 minimum) outside Tesco in each purchase transaction.  Must have available credit to collect Clubcard points. Clubcard points are turned into Clubcard vouchers every 3 months or sooner using Faster Vouchers. Clubcard vouchers can be used in Tesco or with Clubcard Reward Partners to get even more value on dining out, hotel stays and travel.
Representative example: When you spend £1,200 at a purchase rate of 27.542% (variable) p.a., your representative rate is 27.5% APR (variable).
£0
£0
Not specified
Not specified
27.9%
Representative example: When you spend £1,200 at a purchase rate of 27.95% (variable) p.a., your representative rate is 27.9% APR (variable).

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Will I need a credit check to get a credit card?

Yes, you’ll almost certainly need a credit check in order to get a credit card, but the good news is that almost all lenders will let you use an online “eligibility checker” before you apply. This quick check will provide you with a good indication as to whether or not you’ll get approved for the credit card you are interested in. What’s more, completing this initial eligibility checker won’t have any impact on your credit score because it only involves a “soft” credit search.

Eligibility checkers can be extremely helpful for people with bad credit but it’s worth noting that it’s not a guarantee that you’ll be accepted for a credit card.

How can I compare unsecured credit cards for bad credit?

If you’ve got a bad credit rating and are looking at specialist credit cards, consider the following factors when comparing your options:
  • Eligibility. Each card issuer will have its own criteria that applicants will need to meet – covering things like your age and income. Almost all providers now offer a free “eligibility checker” tool (although they may call it something else), so that you can get a good idea of whether or not you would get approved for the card before you apply, without affecting your credit score. You shouldn’t apply for a card unless you’re confident that you’re eligible because multiple applications for credit can have an adverse effect on your credit score and can put off potential lenders.
  • Interest rates. This is the cost of borrowing. Any outstanding balance that you carry from month-to-month will incur interest. However, if you can clear your balance in full each month then with most cards you’ll be able to avoid interest altogether – credit cards typically come with up to 55 interest-free days on purchases if you don’t carry a balance month-to-month.
  • Credit limits. Credit limits are invariably tailored to the individual, but many issuers are upfront about their minimum and maximum limits. Some issuers also promise a credit limit review after a specified number of months (provided you’ve made all repayments on time).
  • Rewards and perks. Although credit cards for bad credit don’t typically come with much in the way of perks, a few do. Some issuers, including Asda and Tesco, let you earn reward points on all your spending on your card.
  • Fees. It’s important to check what fees apply with the card you’re interested in. These can include annual or monthly account fees, cash advance (withdrawing cash using the card) fees, overseas transaction fees and others.

The “dos and don’ts” of credit cards for bad credit

  • Do explore credit cards such as credit builders – designed to help those with bad credit to rebuild a positive credit history.
  • Do use an eligibility checker before applying for a credit card.
  • Do make credit card repayments on time, every month.
  • Don’t ever miss a payment, as doing so could mean it will become even harder to get credit in the future.
  • Don’t apply for too many credit cards over a short period of time, as this can appear too risky for lenders.
  • Don’t leave unused accounts open. If you have several accounts but are not currently using them, think about closing them.
  • Don’t use your credit card to withdraw cash from an ATM, as you’ll likely be hit with additional fees.

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