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A secured credit card is a great way to establish or reestablish a solid payment history and raise your credit score. Intended for those with bad credit, secured credit cards are mainly used as a transition to regular (unsecured) credit cards.

What is a secured credit card?

Unlike with a regular credit card, when you open a secured card, you need to post an upfront deposit, usually equal to the amount of your credit limit. This is the bank’s guarantee that even if you default, they won’t lose any money. Because of that guarantee, banks are more willing to lend to you even if you’re considered a risky bet. This upfront deposit won’t be counted towards your debt: if you make a $200 deposit and have a monthly balance of $100, you can’t apply the $200 you paid towards your balance. You need to shell out $100 to pay off your debt. However, once you close your account, you’ll get your initial $200 back.

Who uses secured cards?

Secured credit cards are for people with less-than-stellar credit. If you fall into that category, you basically have four options: a really easy to qualify for, unsecured credit card, a secured card, a prepaid debit card or a regular checking account. We believe that the easiest regular card to qualify for is the Orchard Bank credit card, which has few requirements other than a salary of at least $12,000. We’ve seen FICO scores as low as 500-600 get approved. However, the annual fee is effectively $68 the first year and $59 thereafter, so you might prefer to go with the secured card, which has lower fees.

If you can’t qualify for an unsecured card at all, that’s when you turn to secured credit cards. These let you build up your credit score, and often have lower interest rates than credit cards for bad credit because they’re low-risk for the bank. You can then move up to an unsecured card.

If you don’t want a credit card at all, consider prepaid or regular debit cards. These do not affect your credit score at all, so you shouldn’t look to them to raise your FICO score. A prepaid debit card is often riddled with hidden fees and can cost as much as $100 a year, so we recommend finding a free or rewards checking account that won’t cost you money and might even earn you some.

What should I expect in a secured credit card?

Secured credit cards often have higher fees than unsecured ones. You might see processing, monthly or annual fees, and in the most egregious cases, these fees can top $100 a year. However, two of our favorite secured credit cards have no fee in the first year:

  • The Household Bank secured card has an annual fee of $35, waived in the first year. It also has a 0% purchase APR for the first 9 months and a low ongoing APR of 7.9%.
  • The Orchard Bank secured credit card an annual fee of $35 (waived the first year) and an ongoing APR of 7.9%.

As you can see from the examples above, the interest rates are often lower than most credit cards, even those for excellent credit. This is because of the security deposit: low risk means low APR. In fact, some credit unions offer interest rates below 5%.

Finally, a handful of secured credit cards give rewards. The Household Bank credit card (which we described above) gives a flat 2% rewards rate on all purchases, rare even with unsecured cards. A handful of credit unions also offer secured credit cards with rewards, while the Capital One Cash Rewards for Newcomers gives 1% back on all purchases and 2% on travel, and has no foreign transaction fee or annual fee. That card is designed for recent immigrants who aren’t necessarily credit risks, but have yet to build up a credit history in the United States.

Our top pick: We really like the Household Bank Secured MasterCard, since it has a low annual fee, a 0% purchase APR promotion, a low ongoing interest rate and a pretty darn high rewards rate.