If you have no credit history or currently have a low credit score, you may not be eligible for most credit cards. Sure, you can use cash or a debit card, but these won’t do you any good build your credit. So a better option might be to use a secured credit card.
What exactly is a secured credit card? Here’s what you need to know.
What is a secured credit card?
A secured credit card, whether individual or business, requires cardholders to make a security deposit when an account is opened. This deposit is usually refundable and usually determines your initial credit limit.
Secured credit cards are commonly used by consumers with no credit history or low credit scores and can be useful for building or repairing credit.
Secured and Unsecured Credit Cards
The basic difference between secured and unsecured credit cards is denoted by the terms: Secured credit cards require a security deposit while unsecured credit cards do not .
However, whether you should apply for a secured or unsecured card depends on your credit — especially your credit history and credit score.
Most unsecured credit cards have at least average credit requirements because issuers want to avoid the risk posed by consumers with bad and poor credit. You can find an unsecured card that’s easy to qualify for even with bad credit, but these cards often have high interest rate.
So, if you have below-average credit, it’s better to use a secured card to build credit before switching to an unsecured card.
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How do secured credit cards work?
When you apply for a secured credit card, you usually need to provide your bank account and routing number. If you are approved, the issuer will withdraw the deposit from your bank account. The minimum security deposit is usually between $49 and $200, but you can often deposit more to get a higher credit limit.
You can use a secured credit card just like an unsecured credit card. Ensure payment on time and use your card responsibly, as most issuers will report your credit activity to the three main credit bureaus. This means your account will appear on your credit report and affect your credit score.
If you use your card regularly and pay your bills on time each month, some issuers may offer additional opportunities, such as credit limit increase or switch your account from secure to unsecured. For example, with Capital One Platinum Secured Credit Cardyou will automatically be considered for a higher credit limit for at least six months.
For Discover it® Secured, the issuer will review your credit card account monthly, starting at eight months, to determine if your security deposit will be returned.
When you close your account or switch to an unsecured account with the same issuer, you will get your security deposit back (if it is refundable) provided that your account is unsecured. unpaid balance. In general, your security deposit will not earn interest.
Information about Discover it Secured has been independently collected by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
How to use a secured credit card to build credit
The main reason to use a secured credit card instead of cash or debit card is to build or repair your credit as most banks report activity on secured credit cards to credit bureaus.
With a secured credit card, you’ll typically start with a low credit limit. So, to build or repair your credit, you’ll want to make small, infrequent purchases at first and focus on paying off your balance each month.
The issuer may eventually give you a higher line of credit, which can help your credit score if you keep your usage low and pay off your balance each month. It’s also a good idea to check your credit score regularly while working to build or repair your credit.
There are also other benefits to using a credit card. Most credit cards offer protections that are not usually available when you use debit card or cash, such as no liability for unauthorized purchases. Choose a secured credit card that also offers other benefits, such as Free access to your FICO Score with Citi® Secured Mastercard® and extended warranty with Capital One Platinum Guarantee.
Information about Citi Secured Mastercard has been independently collected by The Points Guy. The card details on this page have not been reviewed or provided by the card issuer.
Related readings: 3 mistakes people make when getting a credit card for the first time
Are any credit cards guaranteed to earn rewards?
Most credit cards are secured, whether individual or businessdo not earn rewards. However, if you’re looking for a security card that earns rewards and can help you build or repair your credit, the Discover it Secured credit card will likely be your first choice.
The card earns 2% cash back at gas stations and restaurants up to $1,000 in combined purchases each quarter, as well as unlimited 1% cash back on all other purchases. No annual fee on Discover it Secured and like other Discover cardsDiscover will match the cashback you earned in the first year.
You must make a $200 deposit, banking information, and tax returns to open an account, but Discover will automatically start reviewing your account every month after it’s been open for eight months to see if you can afford it. can be converted to an unsecured credit line.
Additional reporting by Ryan Wilcox.
