Secured Credit Cards

A secured credit card is exactly like any other credit card, save for one thing: You have to place a refundable security deposit, the amount of which serves as your spending limit. When it comes to why a secured credit card is a great choice, there are five main reasons:

1. High Approval Odds – You can get approved for a secured credit card no matter how damaged your credit may be.
2. Low Costs – Secured cards tend to have very low fixed costs, thanks to their refundable security deposit. Just make sure to pay in full every month because they aren’t known for attractive APRs.
3. Credit Improvement – Secured cards are indistinguishable from unsecured cards. If you pay your bills on time each month and otherwise manage your account responsibly, your credit score will improve.
4. Budgeting – By making your spending limit equal to the amount of your security deposit, secured cards prevent you from borrowing more than you can afford to repay.
5. Convenience – A secured credit card will enable you to make purchases that cannot be completed with cash, such as car rentals, hotel bookings and online shopping. You’ll also benefit from the security of $0 fraud liability.

To learn more, check out WalletHub’s secured credit card guide.

People with bad credit don’t have too many options, but you do have two different types of credit cards to choose from: secured credit cards and unsecured credit cards for bad credit. And the decision comes down to whether you need an emergency loan.

• If you need to borrow money for an emergency, you’ll have to find an unsecured card for bad credit. Be careful, though. Such cards are known to charge high fees and provide very little spending power.
• If credit-improvement is your main goal, get a secured credit card. Secured cards have the highest approval odds, and they’re much cheaper than their unsecured counterparts. If you don’t have the $200+ needed for a secured card’s deposit, you may just want to wait until you’ve saved enough. While opening an unsecured credit card for bad credit might be the quicker route, it will likely turn out to be the more expensive one as well.

If you don’t have the $200+ needed for a secured card’s deposit, you may just want to wait until you’ve saved enough. While opening an unsecured credit card for bad credit might be the quicker route, it will likely turn out to be the more expensive one as well.

A security deposit protects credit card companies from the risk of not being paid back. This allows them to offer nearly guaranteed approval and charge fairly low fees. So while it may scare off some people, the security deposit required to open a secured credit card is actually quite helpful. In fact, it’s the main reason why the riskiest applicants even get a second crack at credit to begin with.

Placing a refundable deposit has other perks, too. Since your monthly spending can’t exceed the amount of your security deposit, you’ll be far less likely to spend beyond your means. Furthermore, most unsecured credit cards for bad credit charge nearly as much in non-refundable fees as a secured card’s minimum deposit. And all you typically get in return is a bit more than $100 in additional spending power.

Yes, secured cards report information to the major credit bureaus on a monthly basis. They’re just like any other credit card in that regard.

In fact, lenders won’t be able to tell whether you have a secured credit card or an unsecured card by looking at your credit report.

The short answer to this question is “not exactly.” Secured credit cards offer nearly guaranteed approval. In other words, most people should be able to get one, even with bad credit. But approval requirements vary from credit card company to credit card company.

Many issuers will reject people with certain types of negative information – usually a non-discharged bankruptcy or pending tax lien – on their credit report. Other secured cards don’t even perform a credit check. They simply require you to earn more than you spend each month.

So while secured cards don’t offer truly guaranteed approval, they give you the next best thing. And it’s as good as you’ll get with any credit card.

Most secured credit cards require a deposit of at least $200. And the minimum deposit required is always a good place to start. Simply opening an account is the most important thing at this point, as it will allow you to begin rebuilding your credit. In other words, depositing the minimum lets you get started right away without having to worry about giving up too much cash.

Plus, the beauty of using a secured credit card is that you can add to your deposit over time. That gives you a higher spending limit, which allows you to improve your credit utilization and boost your credit score. In general, the more available credit you have, the more favorably credit scores treat you. Just bear in mind that most secured credit card issuers won’t allow your total deposit to exceed $5,000.

Rebuilding credit can take some time and provide plenty of frustration, but how to go about doing it is no secret. Above all else, you need to follow these five simple steps:

1. Double-check your credit report & score. It’s important to make sure there are no errors on your report and to know exactly where you’re starting from.

1. Pinpoint the problems. The cause of bad credit is often quite clear: a charge-off, foreclosure or bankruptcy, for example. But other problems aren’t so obvious, which makes checking your WalletHub’s Credit Analysis page essential. Knowing what’s wrong will make it easier to treat your credit’s ailments.

1. Maximize the good news. Rebuilding credit is a matter of both waiting and fighting back. It may take years for negative records to come off your credit report, but you can dilute their impact in the meantime by adding positive information on a monthly basis. The best way to do that is to keep an open credit card in good standing by making on-time bill payments, if you use it to make purchases at all. And a secured card is without a doubt the best type of credit card to use for rebuilding credit.

1. Make a plan for pending problems. Paying off collection accounts, making up missed payments on a delinquent account, and negotiating a repayment plan with a lender or debt collectors are all examples of steps that you can take to limit the damage caused by lingering issues.

1. Build a safety net. An emergency fund is an asset when rebuilding credit, as it helps you avoid ending up right back where you started if you get blindsided by a financial emergency. But that’s not the only way to prevent history from repeating itself as far as bad credit is concerned. You may also want to brush up on your budgeting and set up automatic monthly payments from a bank account.

For more advice, check out WalletHub’s complete guide on How to Rebuild Credit.

People with bad credit generally can graduate from a secured credit card to a decent unsecured card after 12 to 18 months. But it depends on what you do in the meantime, not to mention how badly damaged your credit happens to be. Making on-time payments every month you have a secured card will help speed things up, as will using only a portion of your credit limit.

When the time comes, the switch from a secured card to an unsecured credit card usually happens in one of three ways:

1. You close your account after approval for an upgrade – The secured card’s issuer will refund your deposit, minus any unpaid balance, when you close your account.
2. Your issuer offers you a credit-limit increase – If the bank that issued your secured card reviews your account and likes what it sees, it might offer you a higher credit limit. This would convert your secured credit card to a partially unsecured card. But everything else would stay the same. And you wouldn’t get your deposit back at this time.
3. Your issuer returns your deposit – Your existing account stays open in this scenario, but it becomes fully unsecured because you get your deposit back. It will be returned via check or statement credit.

You can monitor your credit-building progress for free on WalletHub, the only site with free daily updates to your credit score and report. When your credit score reaches “fair” territory, you’ll know you’re ready for an upgrade, if you haven’t been offered one already.

No, prepaid cards do not help you build credit. That’s because a prepaid card isn’t actually a credit card. It’s more like a debit card, which has no credit-building capabilities, either. You can learn more about what prepaid cards can and cannot do from WalletHub’s article on the subject.

More than 50 secured credit cards from over 30 different credit card companies are currently available, according to WalletHub’s database. That includes offers from the likes of Capital One, Citi and Discover, plus some from smaller banks and credit unions.

But remember, it’s not the issuer of a secured credit card that really matters. Your goal should be to find the card with the lowest possible annual fee, no matter who offers it.