Who is a Secured Credit Card Good For?

Who is a Secured Credit Card Good For?

Who is a Secured Credit Card Good For?

Are you someone who wants to establish your credit? Perhaps you have to start rebuilding your credit after a few costly mistakes. Whatever the reason, a secured credit card can be useful. Using them responsibly will help you build a solid credit history. Learn who is a secured credit card good for?

Potential lenders will look at this credit history and decide whether or not to work with you. The higher your credit score goes, the more financial opportunities you have. You’ll potentially be able to get larger loans or better interest rates with your credit cards. For a lot of people, it all starts with a secured credit card. If you want to know more and decide if this is a viable option for your situation, read on.

Defining a Secured Credit Card

The first thing that you have to understand is what a secured credit card is. It differs from a traditional credit card in several key ways. These differences are why secured credit cards are available to people with no or poor credit. You apply for a secure credit card with a traditional application. However, the card will ask for a deposit. This deposit ranges from $49 up to over $200.

This deposit will usually become your line of credit. You won’t be able to spend anything more than this amount. This restriction can start to teach you responsible use because you don’t have a choice when it comes to spending. The creditor holds this security deposit until you close your account in good standing. When you do this, they’ll refund the deposit amount.

Do Secured credit cards help build credit?

The lender will report your secured card use to the three credit bureaus each month. As long as you pay your bill on time, your score should start to rise. Usually, it takes about a year of responsible use before you can get an unsecured card. This does depend on what your score was when you first got your card.

Secured cards are a higher risk for the lenders. It’s not uncommon to see high interest rates and miscellaneous fees with a secured card. You may have to pay a fee to open an account. Monthly maintenance fees, late fees, and an annual fee all add up as well. You want to avoid carrying a balance to avoid the higher interest rates.

It’s also important to note that a secured credit card is very basic. They typically don’t offer rewards or perks for the users. One exception is the Discover it® Secured Credit Card which offers cash back rewards.  If you do find a secured card with rewards, pay attention to the fees. They’re generally higher. This may not make a lot of sense if you can’t make the rewards balance out.

Using Your Secured Credit Card

So be very careful when you use your secured credit card. Ideally, you want to charge only what you can pay off per month. Perhaps make one or two smaller purchases a month. As long as your credit history shows that you’re using the card responsibly, your score will go up. You want to keep an eye on your credit utilization ratio as well.

This ratio means that you only use around 30 percent of your available credit limit. This also may not be feasible if you only have a $200 limit. You’d only have around $60 to spend and pay off each month. Find a good balance between making small purchases and keeping your utilization ratio low.

During this time, you want to monitor your credit score. Look for any errors and report them. You want your credit score to reach around 630. When it reaches this level, you can start to apply for traditional credit cards. Your secured card company may offer you an upgrade to an unsecured card as well. Make sure that the card you choose lines up with your spending habits. This will allow you to get the most out of your new card.

Deciding if a Secured Credit Card is the Right Choice

Now it’s time to consider if a secured credit card is a good choice for you. You’ll generally have a pretty good idea based on past experiences. However, if you’re not sure, look and see if any of these situations relate to your life.

1. Lenders Have Denied Past Loan or Credit Card Applications

Have you ever applied for a credit card or a loan? If so, did the lender deny you because of your credit? Lenders look at your credit score and your credit history. If you have a history of failing to make your payments, they see you as high-risk. A secured credit card has minimal risk for the lender. You’re losing your deposit if you don’t pay your balance.

2. You’ve Made Costly Mistakes

Have you ever missed a few payments or filed for bankruptcy? Things like overdue balances, foreclosures, and accounts in collections are all red flags. To make matters worse, they can sit on your credit report for up to 10 years. It can negatively impact your credit score this entire time. A secured card gives you the chance to change your spending habits. You can pay your bills on time, pay off your balance, and build your credit.

3. You’ve Never Had a Credit Card

Maybe you’re afraid that you’ll use your credit card irresponsibly. This fear has stopped you from having a credit card. It turn, your credit history may be very slim. A secured credit card is a great place to start. It restricts your spending because you have a low credit line. Additionally, the higher interest rates can encourage you to pay off your balance each month.

Bottom Line

Who is a Secured Credit Card Good For? Secured credit cards are useful tools for building or repairing your credit history and score. It will take some work on your part. Maybe you’ll have to reevaluate your spending habits and make them healthier. But, it’ll pay off because more financial opportunities will present themselves to you. Finally take a look, apply for a secured credit card, and build a healthy credit score.


CreditFast has reviewed the best secured credit cards on the market. Some of the credit card offers are from our advertising partners. CreditFast has objectively reviewed the features and benefits of each secured credit card. We have chosen credit card offers based on our editor’s recommendations.

Monica Kowollik

Director at CreditFast.com
Monica has covered credit card and personal finance news for over 15 years. From an early age, she developed an interest in financial literacy and saving money. Monica hopes to help others to improve their personal finances one article at a time.