Best Secured Credit Cards of 2024

What is a secured credit card?

A secured credit card aims to help you build or improve your credit history. Backed by a cash deposit, the card issuer holds the deposit as collateral in case of missed payments and default.

A secured credit card is best for those who are deemed as a higher-risk borrower due to a poor or insufficient credit history. The deposit enables the lender to cover their risk if you default.

How does a secured credit card work?

Many secured credit cards start with a minimum deposit of $200 and this can go up to $3000 - $5000. You can use your secured credit card to make purchases and as you make your monthly repayments, this will help improve your credit score. Your credit line will equal your deposit, so if you give the lender $1000 as collateral, you’ll receive $1000 as your credit line. This is the maximum limit you can spend on your card.

As you build your credit score, your credit limit can be increased or you may receive access to other forms of credit such as an unsecured credit card.

The deposit is refunded to you if and when you choose to close your secure credit card, assuming you have paid off all outstanding bills.

Secured vs. unsecured credit cards

The main difference between secured and unsecured credit cards is that a secured card requires a deposit equal to the credit limit. For unsecured cards, the issuer will determine a credit limit based upon the credit history and income of the applicant, with no required deposit.

How to best use a secured credit card?

The goal of a secured credit card is to help rebuild your credit history and lower your risk of borrowing in the eyes of the lender. The following can help you ensure you are using your secured credit card effectively:

• Pay your full balance every month: By paying off your balance each month, you are signaling to the issuer that you have the means to make timely repayments, which helps to build your credit score.
• Credit utilization ratio: Your credit utilization ratio is one of the factors used to determine your credit score. If you spend 90% of your credit limit every month then you have a high balance compared to your credit limit. This can negatively impact your credit score. To counter this, it’s best to sign up for a higher credit line and keep your balance 20 – 30% of your credit limit.
• Build your credit score: As your credit improves, you may be eligible for a higher credit limit or some card issuers may give you the option to convert the card to an unsecured credit card, with better rewards and a lower interest rate.

How to get a secured credit card?

You can apply online for your secured credit card, at many banks and card providers such as Discover it, Platinum one, Bank of America, and Citi. The best-secured credit cards will offer low fees and a lower interest rate. If you have a bad credit history, it may be a good idea to opt for an issuer that does not check your credit report.

To get approval, you’ll need to have a bank account and an income to prove that you can pay your credit card bills. Many issuers are likely to do a hard credit check, so it’s important to have all your recent bills paid and up to date.

Typically, there are three steps to getting a secured credit card. These include:

• Apply for the card: Fill out the application and if you pass the necessary checks and requirements, you’re likely to obtain approval.
• Provide a deposit: You’ll be asked to fund a deposit that secures your credit limit before the credit card is sent to you. Once you receive the card, you can start making purchases.
• Pay off your monthly statement: To improve your credit score, be mindful to pay off your bill in full each month. Interests can also be high on a secured credit card, so it’s best to avoid paying any extra charges.

When looking for a secured credit card issuer, it’s a good idea to opt for one that can upgrade you to an unsecured card without needing to fill out another application. Not all secured credit card issuers have the option of an unsecured card, so it’s best to shop around.

Secured Credit Cards Pros & Cons

If you’re looking to lower the cost of your future borrowing and improve your credit history, then you might want to consider a secured credit card. While the benefits can outweigh the drawbacks, it’s important to be aware of both, depending on your situation.

PROS:

• Build your credit history: A secured credit card can allow you to build credit. This will add to your positive credit history and increase the confidence a lender will have in your ability to repay debt. This can lower the cost of future borrowing and give you access to other forms of credit.
• Easier approval: Some issuers do not do a hard credit check which can make approval easier.
• Potential to earn rewards: Many issuers have rewards associated with their cards.

CONS:

• Deposit required: Unfortunately, with a secured credit card, you may need to put a large deposit down to gain approval. Depending on how fast you can build your credit and upgrade to alternatives, this can tie up your money and prevent you from using it in an emergency or gaining interest in a savings account.
• High fees: Many secured credit cards have fees associated with them including application fees and annual fees. It’s important to be aware of these fees before you apply for the card, as they can quickly add up.
• High-interest rates: They can have a higher interest rate which can be anywhere from 15-25%+. As they are aimed at people who have a higher risk of default, look to pay off your full balance every month to avoid extra charges.

What are the interest rates & fees for secured credit cards?

Secured credit cards generally carry more fees and a higher interest rate. Some card issuers can charge interest rates of 26.99% variable. Fees can include application fees, processing fees, and annual fees. Be sure to compare multiple providers before applying.

Often issuers have reward programs and perks. Rewards can include cashback, car rental insurance, and protection against fraud.

Are there alternatives to secured credit cards?

While secured credit cards are a great option for people with limited or poor credit who are unable to get an unsecured credit card, they might not be right for everyone. If you’re unlikely to be able to fund the cash deposit or you’re put off by the high-interest rates, here are some alternatives to consider:

• Use a cosigner: Certain providers allow you to apply for an unsecured card with a cosigner who is legally responsible to pay off the balance on your card if you default on payments. A credit-worthy cosigner can help you get approved for a card with lower fees and lower interest rates.
• Credit cards for bad credit: If you’re limited by your credit score, there are credit cards for bad credit that can help you get approval. However, it’s important to be mindful of the fees as these can be high.

Are secured credit cards worth it?

If you have a poor or limited credit history, secured credit cards are worth considering as they can help build your credit score. In addition, many issuers give you the option to upgrade to an unsecured credit card after some time, allowing you to receive a refund for your deposit. It’s easier to obtain approval and you can also earn cashback as part of a rewards program.

However, secured credit cards do come with their limits. Some applicants may not meet the deposit requirements or be able to pay the high-interest rate if they cannot pay off their full balance every month. Furthermore, if you require high usage of your card, a high credit utilization ratio could count against you.

It’s a good idea to shop around for different card issuers and consider the alternatives before applying for a secured credit card as this could help you save money in the long run.