What are two downsides of getting a secured credit card?

Two downsides of getting a secured credit card are the required security deposit and the fact that your credit limit is likely to be low. All secured cards make you put up a deposit in order to open an account, and your credit limit typically equals the amount of the deposit. There are also a few other downsides to secured cards that are worth noting.

Disadvantages of Secured Credit Cards

• Security deposit: You have to make a security deposit. You usually need to put down at least $200-$300 to open the account, but the deposit is refundable when you close the account with a $0 balance.

• Hard credit pull: The issuer will do a hard credit pull. Almost all secured credit cards (and unsecured cards as well) require a hard credit pull when you submit an application. This will likely drop your credit score by around 5 to 10 points, but you should be able to bounce back after a few months of responsible credit use. It’s also worth noting that there are a few secured cards that don’t require a hard pull.

• Low credit limit: Your credit limit might be low. Since a secured card’s limit is typically only as high as your security deposit, you will need to deposit more money for a higher limit. There may be a cap on how much you can deposit, though.

• Often no rewards: You might not earn rewards. Some secured credit cards may have rewards, but most do not. However, if you’re getting a secured card, it’s better to focus on credit building rather than rewards, anyway.

You can learn more about the pros and cons of secured credit cards on WalletHub. But at the end of the day, it’s important to remember that a secured card is one of the best options for people with damaged or limited credit who want to improve their score.