The Ultimate Guide to Secured Credit Cards

If you have damaged credit or no credit history at all, you will have a hard time qualifying for a traditional unsecured credit card. You may feel that you have reached the end of the road when it comes to acquiring a credit card to help rebuild your credit. Another option you might not be aware of is secured credit cards that are intended for people with low credit scores.

How Do Secured Credit Cards Work?

A secured credit card works like a traditional credit card that allows you to make purchases and you need to payoff the balance in full before the monthly due date, except, your credit limit is secured with a refundable security deposit that is equal to your total credit limit. This is just like the security deposit equivalent to one month of rent you had to give to your landlord to move into your apartment.

So, if your secured credit card’s security deposit is $500, your total credit limit is $500. By paying the balance in full each month, you can spend up to $500 monthly. If you miss a payment, you will be charged a late fee, have your score penalized, and potentially have your account closed if you miss several payments.

Do Secured Credit Cards Report Payment Information to the Credit Bureaus?

Most secured credit cards will report your payment information to the credit bureaus. They said say so on their website or you can always ask them before applying.

If you make on-time payments, your credit score will gradually improve. Missing payments will further damage your score & can even cause the credit card company to close your secured credit card account.

What Credit Score Do I Need for a Secured Credit Card?

Generally, you will need a credit score between 500 and 690 to qualify for a secured credit card because this can be considered the “subprime” credit score range.

It can be possible to be approved for a secured card if you have a “poor” credit score of 499 or less, but, you can expect to have a lower credit limit than applicants with better credit scores.

Do Secured Credit Cards Have Annual Fees?

Yes, although a few credit card companies have begun offering secured credit cards without annual fees! If you are considering about applying for a secured card from your local bank or credit union, it is more likely to charge an annual fee than a national credit card company.

Do Secured Credit Cards Offer Purchase Rewards?

Only one card, the Discover it Secured Credit Card offers purchase rewards like an unsecured cash back credit card where you can earn at least 1% cash back on every purchase. This is the exception to the rule as the primary purpose of secured credit cards is to rebuild credit cards, not getting rewarded for spending more money.

You are more likely to find a secured card with no annual fee than one that pays rewards.

Can I Eventually Upgrade to an Unsecured Credit Card?

Yes. Depending on what secured credit card you own, your issuer might give you the option to automatically upgrade to an unsecured credit card with no security deposit, a higher credit limit, and the possibility of purchase rewards after 12-18 months of steady payments.

There are several variables that play into this scenario such as your credit score, current card limit, and the card issuer’s upgrade policy. Another clue that you can qualify for a better credit card is when you begin receiving pre-approval offers for unsecured credit cards.

How Do I Choose a Secured Credit Card?

The #1 factor to look at is the card fees. Since most secured credit cards will probably offer the same credit limits, you want to find the cheapest card possible. That means you should try to apply for the no-fee cards first. This is because annual fees require more of your money and provide the same service.  Here are some of the best secured cards of 2017

When your credit score is high enough to upgrade to an unsecured credit card, you should once again consider the fees. A credit card, secured or unsecured, is one of the easiest and most affordable ways to improve your credit score if you pay your balance each month and don’t have high annual fees.




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