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If you have poor or limited credit history, getting approved for a secured credit card can be easier than getting a traditional credit card, because secured cards are less risky for lenders. A secured card is a credit card that requires you to place a deposit of your own money as collateral in exchange for a line of credit.
Because you are required to pay a security deposit that is typically equal to the card's credit limit, the lender can use this deposit as collateral to minimize its own risk. If you default on making your payments, the lender knows it won't lose money because it has your security deposit on hand.
Once you pay the deposit on a secured card, you can use the card just like any other credit card. Most secured cards allow applicants to pay deposits of anywhere between $200 and $3,000. The amount you put down typically serves as your credit limit. if your security deposit is $500, your credit limit will also be $500.
Why Secured Credit Cards Can Be a Good Option
Secured cards give people with limited or poor credit history the opportunity to establish and build their credit. They can also serve as stepping stones to obtaining other forms of credit.
Unlike prepaid cards—which are pre-loaded with cash and are used like debit cards—secured cards typically report your account and payment history to at least one of the three major credit bureaus. Having your information reported to the credit bureaus is crucial to establishing and building your credit score, so you should confirm with the issuer of your secured card that it will report your account history.
Over time, some card issuers will convert secured cards into unsecured cards and return your original security deposit. With the Discover it® Secured card, an Experian partner, your account is automatically reviewed every eight months to determine whether it can be converted to an unsecured card.
Other cards like the Capital One® Secured Mastercard® offer access to higher credit limits—with no additional deposit required—as long as you make your first five monthly payments on time.
Can You Get Denied for a Secured Credit Card?
While it is difficult to be denied for a secured card, most card issuers still look at your credit file for red flags like past bankruptcies or a history of missed payments. Creditors understand that secured cards are meant for people with poor or limited credit history, but some issuers still look for a minimum credit score when considering applicants.
Secured Cards with No Minimum Credit Score Requirement
For people with poor credit, or no credit history at all, there are still some options when it comes to getting a secured card. Both of these secured cards are offered in the Experian credit card marketplace, have no requirements for credit history or minimum score, and can be used just like normal credit cards.
Ongoing APR: 24.24%
Annual Fee: $0 for 1st Year, after that $29 Annually
The Assent Platinum Mastercard® has no requirements on credit history or minimum score and is easy to get for someone with poor credit. You can deposit anywhere from $200 to $2,000 to secure your credit limit, and a new expedited procession option makes it so that you can get your new card quickly.
Ongoing APR: 26.24%
Annual Fee: $0
The First Latitude Platinum Mastercard® has a $0 annual fee and has no requirements on credit history or minimum score for approval. Credit limits range from $200 to $2,000 depending on your initial deposit and your information is reported to all three major credit bureaus, which will help you establish and build your credit.
Important Factors to Consider When Choosing a Secured Credit Card
It is important to pay close attention to the annual fees, APRs and miscellaneous fees associated with the secured card you choose. Some secured cards may have higher APRs than others, so paying attention to these details can help you save money over time.
You should also make sure that the card issuer reports your information to at least one, and preferably all three, major credit bureaus. That reporting is what will actually help you establish or build credit.
Once you confirm your information is being reported to the bureaus, it is important to know how your credit scores are calculated and what you can do to improve them over time. Checking your credit reports and scores regularly can help you stay on top of your finances and track any changes to your scores over time.
Do Secured Cards Offer Rewards or Benefits?
Beyond helping to build credit, some secured cards can also come with some of the perks that make unsecured and premium credit cards so desirable. For example, credit cards transactions are protected by the Fair Credit Billing Act, which ensures that you are never responsible for things that you didn't receive.
Depending on the card issuer, some cards may come with benefits like purchase and fraud protections, free access to your FICO® Score*, rental car insurance, and some cards even offer cash back rewards.
Want to instantly increase your credit score? Experian Boost™ helps by giving you credit for the utility and mobile phone bills you're already paying. Until now, those payments did not positively impact your score.
This service is completely free and can boost your credit score fast by using your own positive payment history. It can also help those with poor or limited credit situations. Other services such as credit repair may cost you up to thousands and only help remove inaccuracies from your credit report.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on December 11, 2018, and has been updated.
*Credit score calculated based on FICO® Score 8 model. Your lender or insurer may use a different FICO® Score than FICO® Score 8, or another type of credit score altogether. Learn more.