Just like a regular credit card, a secured card lets you charge purchases, up to a specified credit limit, and make monthly payments. If you don't pay off the bill, the issuer will charge interest, called an APR, on the balance. Secured credit cards have an average APR of about 20 percent, according to U.S. News data.
Advantages of Secured Credit Cards
Not everyone can qualify for top-of-the-line credit cards with rich rewards, high limits or super-low interest rates. If you've been turned down because of bad credit or no credit, a secured credit card is probably your best option. These cards require a security deposit, which makes them easier to get.
Secured credit cards can be a good option for building or rebuilding your credit. ... A secured credit card can help you establish or re-establish your credit. Since payments are included in your credit report, paying on time and managing your balance will help improve your credit score.
You can build credit with a secured credit card in as little as 1 month, but it will take many months or even years to build a consistently good or excellent credit score. The length of time also depends on whether you're building credit from nothing or rebuilding damaged credit.
Most secured cards require a deposit of at least $200 or $300, although at least one card has an option for a lower deposit. Every secured card allows you to deposit more than the minimum, but most set a maximum deposit amount. Your deposit is usually equal to your credit limit.
¨ Cardholders cannot easily withdraw the money in their savings account that is being used to secure the credit card. Withdrawing the security deposit will generally require closing the credit card account and paying off the outstanding balance and applicable fees.
The Best Secured Credit Cards
You should keep a secured credit card open for a minimum of 12 months, and up to several years, depending on your credit score. It's best not to cancel a secured card until you've built up a fair credit score and gotten approved for an unsecured credit card with no annual fee or great rewards.
Learn more:
How to Improve Your Credit Score
Getting rejected for a secured credit card might be a surprise. ... In most cases, the credit card issuer will still check your credit. You may be denied if you have a bankruptcy on your record, a history of missed payments, insufficient income or other red flags. But don't give up.
Yet No Comments