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Secured vs. unsecured credit card
Secured and unsecured credit cards aren’t all that different, but one is easier to get.
Most credit cards you’ve heard of are probably unsecured, meaning they don’t have any collateral backing up the line of credit. The main difference between an unsecured and a secured credit card is that secured cards have collateral, usually in the form of a cash deposit.
What is a secured credit card?
A secured credit card is a line of revolving credit that requires a security deposit, typically a cash deposit. Other than the collateral, secured credit cards work the same as regular credit cards. With both cards, you have a set credit limit you can spend up to, and you repay what you borrow. If you don’t pay off the balance before the billing cycle is over, your owed balance accrues interest. This interest usually has an APR above 20%.
A secured credit card’s security deposit usually sets your credit limit, too. For example, if you make a $200 deposit, your secured card’s credit limit is likely $200. If you can’t repay your balance, the deposit covers the debt. The security makes these cards less of a risk to lenders and, in turn, also makes them easy to qualify for if you have a less-than-ideal credit history.
Most secured cards have low credit score requirements, often below 670, or the bank may not check your credit score at all. Thanks to their lax requirements, secured credit cards are often someone’s first credit card. These cards are great for students and young adults, new borrowers or those who want to improve their credit.
Do all secured credit cards require a cash deposit?
Most secured cards require a security deposit, usually a minimum of $200. However, some cards have low or no deposit requirements, such as the Capital One Platinum Secured Credit Card, which lets you make a security deposit as low as $49.
Some secured cards skip the cash deposit and require a linked bank account instead, such as the Fizz card or the Current Build card. With those cards, the credit limits are set by what you currently have in your linked deposit account, and the owed balance is repaid automatically. And because the balance is repaid each month, there are no interest charges.
At a glance: Secured vs. unsecured credit card
| Features | Secured credit card | Unsecured credit card |
|---|---|---|
| Credit score requirements | None, or may accept scores under 670 | Often 670+ credit score |
| Requires deposit or collateral | Yes | No |
| Builds credit history | Yes | Yes |
| Offers rewards | Sometimes | Often |
| Credit limit increases offered | Sometimes, usually through an upgrade to an unsecured credit card | Often |
Do secured credit cards build credit?
Yes, secured cards build credit history just like regular credit cards. Credit cards impact every main part of your FICO credit score:
- New credit. If there’s a hard credit check when you apply for the secured card, you may see a dip in your credit score thanks to the category “new credit,” which keeps track of how often you apply for a new loan or line of credit.
- Payment history. The biggest factor in your credit score, so making your credit card minimum payments on time, every time, can improve your credit score. However, missing payments can drastically lower your credit rating.
- Amounts owed. This category keeps track of your credit utilization ratio, which is how much you owe versus your total credit limits. The lower your credit card balances are, the better off your credit score can be.
- Credit mix. This category factors in the types of credit you have active, such as installment loans and revolving credit, and secured credit cards fall under revolving credit. Having a good credit mix can improve your credit rating.
- Length of credit history. Having a long credit history matters. The older your accounts are on your credit report, the higher your credit score can be. Opening a new credit card can lower your credit score temporarily, and closing accounts can also lower your credit rating.
Applying for a secured credit card
Applying for a secured credit card is similar to getting an unsecured card. You can apply for a credit card online, and you must be at least 18 years old and prepared to provide the following information:
- Full name and date of birth
- Home address
- Social Security number or ITIN
- Gross income and possibly proof of income
- Contact information, such as phone number
- Cash deposit, if required
Upgrading to an unsecured credit card
Some secured credit cards offer the ability to upgrade to a regular, unsecured credit card down the line. Typically, upgrading to an unsecured credit card doesn’t involve fully reapplying or a hard credit check, but this can vary by bank.
You might be able to contact the credit card company and ask to upgrade, or they’ll offer it after a few months of good repayment history and low utilization. For example, the Discover it® Secured Card evaluates your last seven months of repayment history to see if you’re eligible to upgrade and earn your deposit back.
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What is the Finder Score?
The Finder Score crunches over 300 checking accounts from hundreds of financial institutions. It takes into account the product's monthly fees, overdraft fees, opening deposit, customer support options, ATM network and features — this gives you a simple score out of 10.
To provide a Score, Finder’s banking experts analyze hundreds of checking accounts against what we consider is the best option: no monthly fees, no overdraft fees, a large ATM network of 50,000 or more, additional features outside of typical banking services, and the optional perk of earning interest. Accounts that are nearly free to maintain and use are scored the highest, while accounts with costly fees and few features are scored the lowest.
Bottom line
Secured credit cards can be great starter cards or a good way to get into the world of borrowing. They have low credit score requirements and lower credit limits and may even let you upgrade to a regular card with a good repayment history.
Compare secured cards with no deposit here, or if you’d rather get a regular credit card, explore the best credit cards.
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