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Secured Credit Cards

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Use them if: You have bad or no credit

Advantages: Secured credit cards help to build or rebuild your credit score, and are easier to qualify for than regular credit cards. Because secured cards pose less risk for banks, their interest rates are usually lower.

Disadvantages: You need to make an upfront deposit as collateral. Most banks have a minimum deposit amount, as low as $200, but if you don’t have the money on hand you won’t be able to get the card. Secured credit cards also come with higher fees than unsecured cards.

How secured cards work: When you open your account, you hand over a deposit that’s usually equal to or greater than your credit limit. You can’t use that money to pay down your debt; it’s just collateral for the bank. Because the collateral makes a secured card essentially risk-free, banks are more likely to lend to those with low FICO scores. Using a secured card responsibly builds up your credit score and will eventually allow you to qualify for a better card.

What to look for:

  • What fees are charged? An annual fee is normal, but some cards also charge monthly or processing fees.
  • Is there a penalty APR? Many credit unions will not charge you a higher interest rate if you miss a payment.
  • What are the requirements? Some banks will approve anyone who can post collateral. Others have various requirements, such as being out of bankruptcy for a year or more or having another account with the bank.

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