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If you have a low credit score or limited credit history, getting approved for a secured credit card can be easier than getting a traditional credit card. Unlike a traditional credit card, however, secured cards require an upfront security deposit. Here's what you need to know before getting a secured credit card.
Who Qualifies for a Secured Credit Card?
Because secured credit cards require you to place a cash deposit as collateral when opening the account, card issuers can be less restrictive when approving applications.
Depending on the card, you may be able to get approved with a low credit score or no credit history at all. Some card issuers may be willing to work with you even if you have a bankruptcy on your credit report—though it typically needs to be discharged first.
Keep in mind, though, that the deposit is typically $200 or more. If you can afford to cover the upfront security deposit, a secured card could be a good option to get started building—or rebuilding—your credit.
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5 Steps to Get a Secured Credit Card
If you're new to credit or looking to rebuild credit after some missteps, a secured credit card could be the answer. Before you apply, though, follow these steps to make sure a secured card is the right move and to maximize your chances of approval.
1. Check Your Credit
Depending on your situation, you may be able to get approved for an unsecured credit card, removing the need for an upfront security deposit. In particular, there are unsecured options available to consumers who are new to credit or have at least a fair credit score—generally a FICO® Score☉ of 580 to 669.
And if you're a college student, you may be able to get approved for an unsecured student credit card instead. To determine whether a secured credit card is right for you—or if you have other options—check your credit score for free with Experian to evaluate your situation.
2. Shop Around
If you've ruled out unsecured credit cards, it's important to shop around and compare several secured credit cards to find the best fit. With Experian, you can get personalized credit card offers based on your credit profile, allowing you to compare your options side by side.
The more cards you consider, the better your chances of getting the best offer available to you.
3. Compare Secured Card Features
Once you've gathered information about a handful of secured credit cards, take a look at the following features:
- Security deposit: Many secured cards require a deposit of $200 or more, with your credit limit equal to your deposit. However, some cards may offer lower deposits based on your creditworthiness.
- Deposit refund policy: With some major card issuers, you may be able to get your deposit back after you demonstrate responsible credit behaviors over the course of six to 12 months. Once your deposit is refunded, your card will be converted to an unsecured card. In contrast, other issuers may hold on to the deposit until you close the account, which can negatively impact your credit.
- Rewards: Many secured credit cards offer rewards on your everyday purchases. While having a low credit limit doesn't give you a lot of room to rack up cash back, points or miles, it can be a nice bonus as you work to improve your credit.
- Fees: While many major card issuers typically offer secured credit cards without an annual fee, others may charge one. These fees are often low, but it's best to avoid them as much as possible.
- APRs: Some secured credit cards charge higher annual percentage rates (APRs) than others. If you plan to pay off your balance on time and in full every month, this may not be an issue. But if you think you may carry a balance sometimes, try to avoid higher-interest cards.
4. Submit Your Application
Once you've selected a card, visit the card issuer's website to submit an application. You'll generally need to provide the following information:
- Full name
- Date of birth
- Social Security number or individual taxpayer identification number
- Citizenship status
- Address
- Contact information
- Employment and income details
- Housing costs
You may also need to share your highest level of education completed and whether you have a bank account. After you submit your application, you'll typically receive a decision within seconds.
5. Pay the Deposit
If you're approved, you'll need to fund your security deposit before you get your card. Some card issuers require you to make the deposit via a transfer from your bank account. Others, however, may also allow you to pay with a money order, personal check or electronic money transfer.
How Secured Credit Cards Can Help You Build Credit
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 preloaded with cash and are used like debit cards—secured cards typically report your account and payment history to the three major credit bureaus: Experian, TransUnion and Equifax.
To make the most of your opportunity, make sure it reports to all three bureaus. If it only reports to one or two of them, you won't get the full benefits for your efforts. Also, make it a priority to keep your credit utilization rate—the percentage of your available credit you're using—low and pay your monthly bill on time (and preferably in full).
Can You Get Denied for a Secured Credit Card?
While a spotty or nonexistent credit history isn't as much of a problem for secured credit cards, you can still get denied for a secured credit card if the lender deems you too much of a financial risk.
In particular, your application may be rejected if your income is too low or you have a pending bankruptcy.
With that in mind, credit card issuers often gear secured cards toward people with a poor or limited credit history, so you have better chances of qualifying compared to other options.
Monitor Your Credit-Building Process
If you plan to use a secured credit card to build or rebuild your credit history, it's a good idea to monitor your credit to track your progress and pinpoint other areas you can improve. Experian's free credit monitoring service provides you with access to your FICO® Score and Experian credit report, giving you the information you need to build and maintain good credit.
You'll also get real-time alerts when changes are made to your credit report, making it easier to spot potential inaccuracies and other problems that could threaten your progress.
