Yes, secured credit cards are worth it for people with limited or bad credit who are looking to build their credit and can afford to put up a security deposit. Secured credit cards often have $0 annual fees, rewards and high approval odds, and they can help you improve your credit score if you pay the bills on time.
When a Secured Credit Card Is Worth It
When you have limited or bad credit. Secured credit cards are good for people with bad or limited credit because they are easy to get, thanks to the collateral requirement that reduces the risk for the issuer. Some secured cards don’t even require a credit check when you apply. On the other hand, people with higher credit scores can get cards with no deposit requirement, better rewards and/or lower interest rates.
When you are looking to build credit. The primary purpose of a secured credit card is to build credit. If that is your main objective and you want an easy credit card to get, these cards are much more cost-effective than unsecured alternatives for bad credit.
When you can afford the security deposit. A secured card requires a security deposit, which is usually a minimum of $200 to $300, to open the account. The amount of this deposit usually becomes your credit limit. You won’t have access to your deposit again until you close the account with a $0 balance or upgrade to an unsecured card.
When you know you can pay on time. Making late payments hurts your credit score, which defeats the purpose of using a secured card. Ideally, you should not only pay on time each month, but also pay your balance in full. That way, you will build your credit as efficiently as possible while avoiding interest charges.
It’s worth noting that there are also unsecured credit cards for bad credit, and it’s fair to wonder whether secured cards are worth it compared to them. In general, these unsecured cards often have expensive, non-refundable annual fees (while secured cards often have $0 annual fees), and their APRs tend to be higher because of the lack of collateral. However, some unsecured credit cards for people with no credit may be better than their secured card alternatives.
Secured credit cards are often considered bad because they require a security deposit. People with bad or limited credit may have a difficult time coming up with the money to put down a deposit, which is needed to open the account. Secured credit cards may also come with an annual fee in addition to the deposit.… read full answer
Even though secured cards might appear bad to some people, the advantages secured cards offer customers with bad or limited credit strongly outpace the disadvantages. Secured cards are easier to get than unsecured cards for bad credit, and usually come with lower fees. Secured cards also report your card activity to the three major credit bureaus, just like unsecured cards.
Finally, the security deposit required to open the account generally equals your credit limit, so there’s little risk of overspending. The deposit is fully refundable if you close out the account in good standing, too.
Secured credit cards have both pros and cons, just like any other type of credit card, but the advantages of secured cards ultimately outweigh the disadvantages. Most importantly, secured credit cards are inexpensive, easy to get, and capable of helping you improve your credit score
High approval odds, even with limited or bad credit
Approval is not guaranteed
Monthly reporting to 1-3 major credit bureaus
$200+ security deposit is required
Lower fees than unsecured cards for bad credit
Credit limit usually equals the deposit amount
Hard to overspend
Rewards are rare
Deposit is fully refundable
No access to the deposit while the account is open
Chance to graduate to an unsecured card with consistently on-time payments
Upgrades are not guaranteed
One of the biggest pros of secured credit cards is that they’re available to customers with poor or limited credit. Secured cards also report account activity to the major credit bureaus just like unsecured cards do. This means cardholders can begin to rebuild or establish credit by using the card responsibly. In addition, secured cards usually have lower fees than unsecured credit cards for people with less-than-good credit.
Among the biggest cons of secured credit cards is the fact that cardholders need $200+ to spare for a refundable security deposit. These funds usually don’t accrue interest while securing the account, either. Plus, your credit limit equals the amount of your refundable deposit, so you won’t be able to borrow money for expenses you cannot already afford.
It’s also worth noting that secured card approval is not guaranteed, although the odds are far higher than with an unsecured card.
Bottom Line: Is a Secured Credit Card Worth it?
Yes, a secured credit card is worth it if your objective is to establish or rebuild credit and you make timely payments every month. When used responsibly, secured credit cards have far more pros than cons.
After all, it’s better to place a refundable deposit that you’ll get back upon closing your account with a $0 balance than it is to pay expensive, non-refundable fees. Such fees are all too common among unsecured credit cards for bad credit in particular. Secured and unsecured cards also appear no different on credit reports.
If you’re looking for long-term financing or an abundance of rewards, however, a secured credit card may not be for you. But it might be a necessary stepping stone for you to get the credit card you really want.
Just remember that even though secured cards are the easiest credit cards to get, you’ll still need some kind of income to be approved. A major negative on your credit report such as non-discharged bankruptcy may also prevent you from qualifying.
Secured credit cards do help build or rebuild credit, as all major secured cards report account information to at least one of the big three credit bureaus every month. That gives you the opportunity to add positive info to your credit report, which is the key to building credit. Whether the credit that you build with your secured card is good or bad depends on your ability to pay the bills on time. You can also build credit just by having a secured card open, even if you don’t use it to make purchases.… read full answer
If you use a secured credit card irresponsibly, maxing it out or missing payments, you’ll have negative information on your credit report. That can lead to a bad credit score. But on the flip side, responsible use of a secured card builds credit just as well as any unsecured card. The only difference between a secured card and an unsecured card is that secured cards require a security deposit and give you a credit limit equal to that deposit. Secured and unsecured cards look the same, both physically and on credit reports.
How Secured Cards Build Credit
All major secured credit cards report to 1-3 of the major credit bureaus on a monthly basis.
Secured credit cards report information about your payment history, balance, spending limit and more to the credit bureaus each month.
The information secured cards report to the bureaus contributes to your credit history.
Responsible use of a secured card results in positive information being reported, helping to cover up past mistakes or build out a thin file.
The key to building credit with a secured card is to never miss a due date, or to just never use your card. As long as your account is open and in good standing, you’re in good shape.
Keeping your statement balance below 30% of your credit limit will help you build credit faster with a secured card.
Secured cards are the best credit cards to use if building credit is your main objective. And they’re particularly useful for rebuilding credit after mistakes. Not only do secured cards report to the credit bureaus, but they also approve even applicants with bad credit. Some don’t even do a credit check. And secured cards are known for low fees. The high approval odds and low fees are all because of the refundable security deposit.
But just because all major secured credit cards can help you build credit does not mean they’re equally attractive. They differ in several important areas, including their annual fees, minimum deposit requirements and rewards. It’s important to shop around and pick the best card for you.
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