Getting approved for a credit card can be difficult, especially if you have little or no credit history. Many people with limited or damaged credit turn to secured credit cards as an easier way to get approved. But are secured cards really easier to get than unsecured cards? Here’s an in-depth look at how secured cards work, their pros and cons, and whether they’re truly easier to get approved for.
What is a secured credit card?
A secured credit card is a type of credit card that requires a security deposit, usually equal to the initial credit limit. For example, if your secured card has a $500 credit limit, you will need to put down a $500 deposit when applying. The deposit acts as collateral in case you default on payments. The money is yours but will be held by the card issuer as long as your account remains open.
The main advantage of secured cards is that they are easier to get approved for than unsecured cards if you have poor or no credit. That’s because there is little risk to the card issuer since your deposit protects them if you fail to repay your balance. Secured cards allow consumers with bad credit or no credit history to start building or rebuilding credit.
How do secured cards help build credit?
Using a secured card responsibly helps build your credit in the same way any credit card can:
- Making on-time monthly payments shows lenders you can handle credit responsibly.
- Keeping your credit utilization low by not maxing out your limit also helps your credit score.
- Having a mix of credit by adding a credit card to loans or other credit accounts improves your credit diversity.
- Length of credit history is also a factor, so having a secured card open for several years helps.
As you demonstrate responsible usage of a secured card, lenders will see improvement in your credit reports and scores over time. Many secured card issuers will graduate responsible users to an unsecured card in as little as 12 months. Graduation allows you to get your security deposit back while continuing to build credit with an unsecured card.
Pros of secured credit cards
Here are some of the key benefits of secured credit cards:
- Easier approval: The main pro is the ability to get approved if you cannot qualify for unsecured cards. The deposit gives issuers the needed collateral for approval.
- Build credit: Making on-time payments helps establish positive payment history and credit files.
- Graduate to unsecured: Responsible use may allow graduation to an unsecured card and refund of your deposit in as little as 6-12 months.
- Establish relationships: Opening a secured card with a major issuer like Capital One or Discover can help you establish a relationship to get other cards or loans down the road.
- Learn good habits: Using a secured card responsibly helps you learn habits like paying on time and keeping balances low for future credit cards.
Cons of secured credit cards
There are also some potential disadvantages or drawbacks to opening a secured credit card, including:
- Security deposit: You will be required to pay a deposit upfront equal to your credit limit, typically at least $200.
- Lower limits: Credit limits tend to be lower than unsecured cards, often only $200-$500 to start.
- Fewer perks/rewards: Secured cards tend not to offer robust rewards rates, signup bonuses, purchase protections that unsecured cards have.
- Rarely reports to all bureaus: Some secured cards only report to one credit bureau initially. Reporting to all three helps most.
- Fees: Like any credit card, secured cards may charge annual, monthly, or other fees.
Requirements to get approved
Every secured card issuer has their own approval criteria, but here are some typical requirements:
- 18+ years old in most cases
- Social security number
- US resident with valid contact info like address and phone
- Gross monthly income may need to exceed $1,000 – $1,500
- No recent bankruptcies
- Willingness to submit security deposit
Your credit score and history are generally not as important for secured cards. Even applicants with scores below 600 and bankruptcies in their past may get approved if they meet other criteria. Pre-qualification with issuers like Capital One and Discover is available to see if you may qualify without a hard credit check.
Top secured cards
Some of the best secured cards in terms of low fees, graduation programs, credit building potential, and issuer reputation include:
Capital One Platinum Secured
- $49 annual fee
- $200 minimum security deposit
- 22.99% variable APR
- No foreign transaction fee
- Reports to all three credit bureaus
- Access to higher credit line after 5 monthly payments
- May graduate to unsecured Capital One card after 6-12 months
Discover it Secured
- $0 annual fee
- 2% cash back rewards (1% after first year)
- Minimum $200 deposit up to $2,500 credit line
- 22.99% Variable APR
- Cash back can be redeemed any amount
- Free monthly FICO score tracking
- May graduate to unsecured Discover it card in as little as 8 months
Bank of America Secured
- $29 annual fee
- 20.24% variable APR
- $300 minimum security deposit for $300 limit
- May graduate to unsecured card after 12 months of responsible usage
- Can request credit line increases every 6 months
- Card benefits like fraud liability protection
How to apply for a secured credit card
If your credit is poor or non-existent and you think a secured card may be your best option, here are some tips for applying:
- Check if you pre-qualify for any cards from major issuers without a hard inquiry. This allows you to check if you meet basic requirements.
- Compare different secured card offers to pick the best card for your needs. Consider fees, credit limits, and graduation policies.
- Have your deposit amount ready based on the minimum for the card’s credit limit.
- Apply directly on the issuer’s secure website for fastest processing.
- Be prepared to submit contact information, Social Security number, income, and deposit.
- Make sure to make all minimum payments on time going forward.
- Keep balances low by paying in full each month if possible.
- After 6-12 months, request a graduation review or higher credit line if offered.
Are secured cards easier to get than unsecured cards?
In most cases, yes, secured credit cards are easier to get approved for than traditional unsecured cards if you have limited credit history. Unsecured cards from major issuers typically require fair to good credit (scores over 630) for approval. Without an established track record of using credit responsibly, most unsecured card applications will be denied.
With secured cards, you deposit money upfront as collateral, giving the card issuer security. This effectively eliminates most of the financial risks creditors take on with unsecured cards. As a result, approval criteria is focused more on age, income, and identity verification rather than your credit reports. Even consumers with scores under 600, bankruptcies, collections, or no scores at all are routinely approved for secured cards.
Who should consider a secured card?
Here are some signs a secured credit card may be right for your situation:
- You have limited or no credit history – this includes younger applicants and new immigrants
- You are rebuilding credit after financial problems like bankruptcy or foreclosure
- You have a low credit score, especially below 600
- You have high utilization on credit cards, dragging down your score
- You want to establish a relationship with an issuer like Capital One or Bank of America
- You need to prove you can handle credit responsibly
- You want an easier approval process
For those with very poor credit, starting out with a secured card can be a stepping stone to eventually getting an unsecured card and building stronger credit.
Alternatives to secured cards
While easier to get, secured cards do require coming up with a deposit that is often $200 or more. And credit limits tend to stay low unless you can get approved for deposit increases. If you need other options, consider:
- Become an authorized user: Ask a friend or relative with good credit to add you as an authorized user on their card. Their history will help your scores.
- Get a co-signer: Adding someone with good credit as a co-signer makes approval more likely and allows higher limits.
- Prepaid debit cards: These cards can help show spending controls since limits equal the amount pre-loaded.
- Retail store cards: Department store cards tend to have easier approval standards but can only be used in that store.
- Credit builder loans: Banks offer loans with the proceeds deposited in a savings account to help build payment history.
- Student credit cards: Student cards through credit unions or banks are aimed at helping those new to credit get started.
While these options may help start establishing credit, most lenders view secured cards as one of the quicker pathways to ultimately getting an unsecured card as your scores improve.
Conclusion
Obtaining a secured credit card is generally easier than qualifying for a traditional unsecured card, especially if you have limited credit history and lower credit scores. While not ideal for everyone, secured cards allow consumers with poor or no credit to get started building a positive history and potentially graduate to unsecured credit in as little as 6-12 months with responsible usage. Just be sure to consider fees, credit limits, and other factors when selecting the best secured card for your needs.