Secured Credit Cards
Our comprehensive, balanced reviews will help you pick the best secured credit card.
What is a Secured Credit Card?
A secured credit card is a type of credit card that is backed by a cash deposit from the cardholder. This deposit acts as collateral on the account, providing the card issuer with security in case the cardholder can’t make payments. With a secured credit card, the amount that you put down in a deposit will become your credit limit for your credit card.
How Do Secured Credit Cards Work?
Most credit cards are unsecured, meaning there is nothing guaranteeing or “securing” your ability to pay off your accrued balance, which is money you owe the credit card company. You agree to pay your balance in whole or part each month, but you’re not putting up any of your assets or income to back that promise. That’s one reason why credit card interest rates are so high. Unsecured debt is always more costly than secured debt, such as mortgages or car loans, to compensate for the lack of collateral.
But secured credit cards require you to make a cash deposit on the card as an assurance that you will pay it off. Your deposit becomes your credit limit. These cards are typically approved for people with bad or little credit as a means to build or improve their credit history.
Can You Get Turned Down for a Secured Credit Card?
It's rare to get turned down for a secured credit card, but it's possible
if an applicant has a bankruptcy or other derogatory marks on their
credit report. But qualification criteria are generally much lower for
secured credit cards than unsecured, making them an ideal tool for
those trying to build credit history or rebuild their credit.
How Can You Improve Your Credit Score with a Secured Credit Cards?
Secured credit cards are often issued to subprime borrowers, or those with poor or limited credit histories (so-called thin-file borrowers). Because the card issuer will report on secured credit cards to credit reporting agencies, these cards can help borrowers improve
heir credit score.
How Do You Apply for a Secured Credit Card?
You can apply for a secured credit card in the same way you would
apply for a regular credit card. They are issued by nearly all of the
leading credit card lenders, like Visa, Mastercard, and Discover, and
look just the same.
Cardholders can use the card anywhere the card brand is accepted and may be eligible for perks and rewards. Cardholders also receive monthly statements showing their end-of-period balances and the activity on the card during the specified month. They’re responsible for paying at least the minimum due, and they pay interest on outstanding balances, which is detailed in the credit agreement.
Secured Credit Card
A secured credit card is backed by a cash deposit from the cardholder. The amount that you put down in a deposit is your credit limit for the credit card.
Unsecured debt refers to loans that are not backed by collateral. If the borrower defaults on the loan, the lender may not be able to recover their investment
because the borrower is not required to pledge any specific assets as security for the loan.
The term collateral refers to an asset that a lender accepts as security for a loan. Collateral may take the form of real estate or other kinds of assets, depending on the purpose of the loan. The collateral acts as a form of protection for the lender.
That is, if the borrower defaults on their loan payments, the lender can seize the collateral and sell it to recoup some or all of its losses.
Default is the failure to make required interest or principal repayments
on a debt, whether that debt is a loan or a security. Individuals, businesses, and even countries can default on their debt obligations. Default risk is an important consideration for creditors.
Credit rating refers to a quantified assessment of a borrower's creditworthiness in general terms or with respect to a particular debt or financial obligation. A credit rating can be assigned to any entity that seeks to borrow money—an individual, a corporation, a state or provincial authority, or a sovereign government.
Creditworthiness is how a lender determines your likelihood of defaulting on your debt obligations, or how worthy you are to receive new credit. Your creditworthiness is what creditors look at before they approve any new credit to you.
Debt is something, usually money, borrowed by one party from another.
Debt is used by many corporations and individuals to make large purchases that they could not afford under normal circumstances. A debt arrangement gives the borrowing party permission to borrow money under the condition that it is to be paid back at a later date, usually with
Repayment is the act of paying back money previously borrowed from a lender. Typically, the return of funds happens through periodic payments, which include both principal and interest. The principal refers to the original sum of money borrowed in a loan. Interest is the charge for the privilege of borrowing money; a borrower must pay interest for the ability to use the funds released to them through the loan. Loans can usually also be fully paid in a lump sum at any time, though some contracts may include an early repayment fee.