John S Kiernan, Managing Editor
The main disadvantages of secured credit cards are the initial deposit requirement and the fact that the credit line is usually limited to the deposit amount. While secured credit cards can be great for people trying to improve their credit score, they typically do not provide any added spending power. There are some other drawbacks to consider as well.
Disadvantages of Secured Credit Cards
- You must pay a security deposit. Secured credit cards require an initial deposit, which serves as a form of insurance for the card’s issuer. You will forfeit access to that money until the account is closed or it graduates to an unsecured version.
- Secured credit cards don’t provide added spending power. With nearly all secured credit cards, the credit limit will match your security deposit. As a result, you can’t actually borrow any money.
- Approval is not guaranteed. Secured credit cards generally offer higher approval odds than unsecured cards. But there are still underwriting standards that every applicant must meet. At the very least, you must be 18+ years old and have enough income to afford both the security deposit and minimum monthly payments. Some secured credit cards might also reject you if have an unresolved bankruptcy.
- Some secured cards charge membership fees. Some secured credit cards come with annual fees, which are non-refundable, unlike the security deposit.
- Many secured cards don’t offer rewards. With some notable exceptions, most secured credit cards don’t give rewards on purchases.
That being said, secured credit cards can be a great credit-building tool because they offer better approval odds than unsecured cards for bad or limited credit, and report to the credit bureaus the same way. If used responsibly, a secured credit card can add a consistent stream of positive information to your credit reports.
You can check out WalletHub’s latest picks for the best secured credit card offers to find the right option for you.
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