What Is A Secured Credit Card?

Secured credit cards can be a good way for people with no or bad credit history to gain, rebuild, and get access to credit. People like students, debtors and n’er-do-wells.

Borrowers place a deposit down and the lender extends a line of credit equal to the initial deposit. This is why it’s called secured. In the event of a default, the funds are covered by your deposit.

It’s important to shop around. You’ll want to watch out for excessive fees and unreasonable add-ons. Often credit unions give good deals on these type of cards.

Bankrate offers a list of secured credit cards and their benefits.

Before getting one, make sure that they report the credit history to the credit bureaus, otherwise know one will know what a good boy you’re being and you’ll suffer the fate of one hand clapping in the forest with no one around — BEN POPKEN

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  1. mantari says:

    It is hilarious to find a 23% purchase APR on credit transactions that are 100% secured by cash on deposit. A yearly fee, I can accept. But 23% interest? They really know how to rape a customer.

    Interest does not equal risk, apparently. It equals the amount they think you’re willing to pay.

  2. Optimistic Prime says:

    I highly recommend looking into a credit union. I just got a secured card for 6% APR. The banks all wanted 23-25%, which truly is wrong. Sometimes a credit union is better than your bank because they aren’t there to make money. Don’t be fooled if it’s a work related union either, sometimes having a family member in that company, or just being a part of the community the union is in is enough. In Cleveland the Firefighters CU is an example of a “community” CU. Often your church parish may even have one as well.

  3. tentimesodds says:

    Should it, mantari? Barring anticompetitive practices (agreeing to only give high rates to such customers), shouldn’t they be able to charge whatever people are willing to pay?

  4. dbeahn says:

    @tentimesodds: The problem is that the banks and lenders all use the “Oh, it’s only that high of an interest rate because it’s higher risk” reasoning for higher interest rates for people with lower credit scores. If, as an industry, you’re going to justify raping the people that generally can least afford it, then you need to be consistent in your own standards.

  5. mantari says:

    @tentimesodds: No. That is why we have usury laws. Given Congress’ recent interest in abuses from the credit card companies, this particular item should be added to their checklist of things to address. A very good point!

  6. Yogambo says:

    It’s really hard to suggest these when they are generally abusive of their clients. They start with huge interest rates, then add in usage fees, usually upwards of $50. Then hammer users with overlimit and late fees when appropriate and at times when not. And they set credit limits that are nearly useless — $250, etc. I realize there are some that might be semi-legit. But the vast majority of these companies represent the worst of the credit industry’s bad practices. It might make some positive credit history for you but the abuse and the derision dealt out by these card issuers is really not worth it. A better solution: consider putting money in your bank (better: credit union), use that as a collateral for a loan of the same amount. Pay on that loan for six months, allowing interest to accure and then pay it off and see about getting a credit card — not secured — from the same bank. It’s worked for many.

  7. cindel25 says:

    I have a US Bank Secured. The good thing about it is that it reports just like a regular card unlike National City which reports as Secured. The bad thing is that if want to UNsecured it, it’s requires a hard pull.

  8. SOhp101 says:

    I’m amused that a website like Consumerist that supposedly advocates consumer empowerment would even think about suggesting a secured credit card.

    Make sure you apply for a nonsecured card FIRST before trying for a secured one.

    If you have that bad of a credit score that you cannot even obtain a credit card, you should reprioritize. If you know can handle getting a credit card but no one will give you one, go get one from a credit union. Credit unions usually don’t even bother offering secured cards because they are usually more willing to extend credit.

    In the worst case scenario, go to your local community college, apply to be a student, then sign onto a major bank’s website and sign up for one of their student credit cards. They usually don’t ask for verification for enrollment so you can probably skip the first step.

  9. John Stracke says:

    As described here, if you want to borrow $X, you have to have $X. If you have $X, why not just spend it in the first place, with a debit card?

    (I seem to remember hearing of partially secured cards, where you deposit $X and your credit limit is $X*N, where N is, say, 5. That’s different…still not a great idea, but not as nonsensical as N=1.)

  10. Treved says:

    Here’s a reason why you would want one even if you have the money: to build credit score.

    I moved to the US from Canada after college. I had zero credit history. I got a $1000 secured card. After a year of paying off my bills every month (who cares what the APR is if you pay it off?) they gave me the money back, plus interest, and a $2000 limit unsecured card. And I was on my way to my high credit score.

  11. Papa K says:

    I’m with SOhp101 – if the only card you can land is a secured credit card, you are probably better without a card. When I screwed my credit up, I backed away, didn’t get secured, and waited until I improved my credit score (and habits) for a *real* credit card.

  12. Little Miss Moneybags says:

    When you’re shopping around, ALSO make sure you check their policy about upgrading you to a regular unsecured card and giving your deposit back. Both my boyfriend and I have been trying for months to get Orchard Bank (HSBC) to either switch us to an unsecured card or close the account.

    My boyfriend’s had this card for nearly four years, and I’m going on two and a half–their policy for upgrading is *supposed* to be automatic with good use after 18 months but they keep sending me letters saying that they can’t review the situation, try again later. We both now have great credit and I’ve been able to get a regular card from another bank, but they keep sending me the same form letter whether I ask for the upgrade or to close the account.

  13. cindel25 says:

    @SOhp101:
    The purpose to use it to springboard to other prime cards. If you’re cleaning up your credit, you will need to show age and history. Just carry and small balance and sock drawer it.

  14. filmhack9 says:

    I would like to agree with SOph101, but the fact is a credit card is an essential tool to conduct many basic transactions, especially when traveling(hotel, rental car, etc). Unless you like traveling with huge wads of cash-not always the best idea.
    Look at it this way: for as little as $250 bucks, you can buy a positive tradeline on your credit report.
    Also, avoid First Premier like the plague. As many as $150 in fees just for activating…

  15. Optimistic Prime says:

    @Scarfish: It sounds like you might want to threaten them with legal action, that can’t be legal.

  16. Trackback says:

    Hey Bank of America! Your ATM Gave Me A Fake $20 Wealth Junkie (who has a blog) received a fake $20 on a routine ATM trip, and didn’t know it was fake until a Costco employee informed him. He brought it back to the bank and they apologized. What is a Secured Credit Card?

  17. Shagadelic says:

    Any Canadians out there? During the course of figuring out how to manage the financial repercussions of a dissolute youth (student credit cards = teh suxxor), I discovered the Financial Consumer Agency of Canada. Among other useful things, they provide a guide to secured credit cards:
    http://www.fcac-acfc.gc.ca/eng/publications/CreditCardsYou

  18. Ice9 says:

    If you have bad credit you can apply for several kinds of cards:
    1. unsecured bad credit cards but they traditionally have enormous high fees, and banks will rarely give your decent credit limit. Unfortunately they will give you about 300-400$. Furthermore they will take all fees from your limit. So my choice is secured credit card.

  19. Little Miss Moneybags says:

    @Optimistic Prime: Good call. I didn’t want to pull anything like that so far, because I didn’t want to lose the last two years of my credit history since I’m moving in the middle of May. Now that all of that is taken care of and I’ve gotten a regular credit card, I’m going to be on the phone with them six times a day doing exactly as you suggest until I get my money back. I wish it was something I thought to look into when I signed up for the card, because I didn’t keep any paperwork showing their policy on upgrading.

  20. senseibasil says:

    It is indeed a good way to build, rebuild your credit line. The one thing that i like most about secured credit cards is that your just allowed to spend the amount you load on your credit card with nothing to worry about overspending.