What are the pros and cons of secured credit cards?

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

Pros and Cons of Secured Credit Cards

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.

The most important pros of secured credit cards are:

1. They’re easy to get approved for, designed for people with bad, limited or no credit.
2. They’re great ways to cost-effectively build or rebuild a solid credit history, since they report to the major credit bureaus in the same manner as any other credit card.

There aren’t really any cons to getting and using a secured credit card, unless you get a card with an annual fee, or extremely high interest rates. One potential drawback is the minimum security deposit requirement, but some secured credit cards have the potential to be “partially secured.” A good example is the Capital One Platinum Secured, providing a credit line as high as $200 for a deposit as low as $49 in some cases. This card doesn’t charge an annual fee.