Secured credit cards are financing options that require you to put a cash deposit down in order to get a credit line from an issuer. The limit on a secured credit card is typically the same amount of money you put down as the deposit. For example, if you put $1,000 down, you’ll have a credit limit of $1,000. This cash deposit is typically fully refundable once you’ve paid off your balance and you cancel the card.

Why would someone get a secured credit card where they have to pay the money upfront vs. an unsecured credit card, which doesn’t require money down? Learn more about the pros and cons of these credit cards below.

The pros of a secured credit card

There are multiple benefits of secured credit cards, including:

  • The chance to rebuild your credit – Each monthly payment is recorded on your credit history. Since you have already pre-paid when taking a secured credit card, you’re taking positive strides during each billing period when you use your card.
  • The opportunity to qualify for unsecured credit cards and loans – If your credit score has been impacted in the past, a secured credit card can help you rebuild your creditworthiness and put you on the path to qualifying for unsecured financing options in the future.
  • No risk if you fall behind – Unlike an unsecured credit card, with secured financing, you cannot fall behind on payments since there is cash on hand to pay off your balance. This means you don’t have to worry about damaging your credit score.
  • Good for learning/teaching financial responsibility – This secured financing option can be a useful tool in teaching someone how to be financially responsible—without impacting their credit score—at an early age.

The cons of secured credit cards

There are some downsides to secured credit cards, including:

  • You must make deposits upfront – If you have a tight budget, needing to deposit large amounts like $500 or $1,000 to keep a credit line open can be difficult.
  • You may have to pay fees – Secured credit cards may come with various types of fees like annual fees and application fees.
  • You likely have to pay higher APRs – The interest or annual percentage rates on secured credit cards are typically higher than those of unsecured credit cards.
  • Want to learn more about secured credit cards? Here are FAQs that can help.

FAQs about secured credit cards

Will a secured credit card help me rebuild my credit?

Yes, secured credit cards can help you rebuild your credit. Each payment is reported to the credit bureau, and the money is already in an account with the issuer. Each month you use your secured credit card could help your overall standing.

Do you lose money with secured credit cards?

Yes, you can lose money with secured credit cards if there is an application fee, annual fee, or interest that you must pay. The credit card deposit, however, is typically refundable.

What is the minimum deposit for a secured credit card?

The minimum deposit for a secured credit card tends to be in the range of $200 to $300. Each issuer sets their own requirements.

How fast can you rebuild credit with a secured credit card?

The time it takes to rebuild your credit can vary based on your credit history and how you use your secured credit card.

If you decide that a secured credit card is not right for you, BHG Money provides unsecured credit cards that can help you accomplish more. Get access to premium features and benefits designed with your needs in mind, from a low APR to multiple cash back reward options tailored to your spending. If you’re interested in finding out more, visit our page here or call our team at 855.961.5350 to see what our financing can do for you.