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Qualifying for credit often requires you to have good credit. This catch-22 can make it difficult when you are trying to get a credit card and have poor credit or minimal credit history. In fact, there are an estimated 121 million people in the U.S. with poor or thin credit, according to the Financial Health Network.

Why Secured Cards Can Be a Good Option

When you have a less-than-perfect credit score or limited credit history, you will have an easier time qualifying for a secured credit card than for an unsecured credit card. This is because secured credit cards equal lower risk to the card issuer, due to the security deposit you put down.


Secured credit cards give you the opportunity to build credit¹. They also serve as a stepping-stone to unsecured credit cards or other credit products, such as auto loans, personal loans and mortgages.

Woman with card

How Do Secured Cards Work?

A secured credit card works like any other credit card, except you need to make a deposit for collateral. This is basically insurance for the lender in case you default on the credit card. The deposit is usually between $200 and $2,000. It often serves as the amount of your credit line. For example, if you make a $500 deposit, then your credit line is $500. Once you pay the deposit on the secured card, you can use the card just like you would any other credit card. Secured cards are accepted at any places credit cards are accepted. You can use a secured card for groceries, travel, gas, online shopping — pretty much anything!
You pay off a secured card just like you would any other card. If you don’t pay your balance in full each month prior to the due date, you will incur interest on any balance you carry.

Do Secured Credit Cards Affect Your Credit Score?¹

Yes – secured credit cards impact your credit score! You might think secured cards sound like prepaid debit cards, but they are very different. If you are looking to build your credit score, secured cards (when used responsibly) can help you do this. While you need to pay a deposit, the secured card issuer is giving you a line of credit, and you must pay that money back each month. Those payments are reported to the credit bureaus which help to build your credit score. So, you are not merely spending your own funds, like in the case of a prepaid debit card, you are building your credit future. When you close your secured card account in good standing – or upgrade to an unsecured card with the same bank – you will receive your deposit back. Prepaid debit cards, on the other hand, do not affect your credit score.

Tips for Using a Secured Credit Card

Since the primary goal of secured credit cards is to help build credit¹, you want to make sure that you use it responsibly. The best way to do this is to:

Source: Financial Health Network – https://finhealthnetwork.org/


This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third party companies, products, or services described here, and take no liability for your use of this information.

Payment history is the most important factor in determining your credit score. Even if you can’t pay the full balance, always make sure to pay the minimum amount before your due date!

Credit utilization is the amount of credit that you use (i.e., your credit card balance) compared to your total credit limit. The lower you keep this, the better for your credit score. It is good to aim for keeping this under 30 percent for the best impact on your credit score.

Maxing out your credit card will increase your credit utilization, while also making it more likely that you’ll carry a balance.

Secured credit cards aren’t known for having the lowest APRs. That’s just not what they’re designed for. So, if you end up carrying a large balance from month-to-month, you’ll end up paying hefty interest fees.

Like we mentioned, secured cards can be a great way to build your credit¹, but to make sure that this happens, you’ll want to confirm with the issuer that they report to the three major credit bureaus – Experian, Equifax and Transunion.

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