What is a Secured Credit Card?
What is a Secured Credit Card
A secured credit card is a type of card that requires you to provide a "security deposit" when you apply. This deposit is usually the same amount as your credit limit. For example, if you deposit $200, you'll get a credit card with a $200 limit. It's like renting an apartment - you give a deposit first in case anything goes wrong. This card can help you build or improve your credit score, because we report your payments to the credit bureaus. If you pay your bills on time, your credit score goes up. Eventually, you may qualify for a regular, or "unsecured", credit card that doesn't require a deposit.
3 things to know about Secured Credit Cards
- Helps Build Credit: A secured credit card can help you build or improve your credit score over time if used responsibly. This makes it a good choice for people with no credit or low credit scores. By making payments on time and in full, you can demonstrate good credit management, which can improve your score.
- Deposit sometimes Refundable: The security deposit you provide when opening a secured credit card is sometimes refundable, provided you pay off your balance in full. This means you get your money back if you close the account.
- May have Higher Fees: Some secured credit cards might have higher fees compared to unsecured cards. This can include annual fees, application fees, and high interest rates. It’s important to understand the fees associated with your secured card to make sure it’s a good fit for your financial needs.
When were Secured Credit Cards created?
Secured credit cards have been around since the mid-1970s. They were introduced as a way to help people with poor or no credit build their credit score. Since traditional credit cards often require a certain level of creditworthiness which a lot of people lacked, secured credit cards, which required a refundable deposit, became a good alternative. Over time, they've become an important tool in helping individuals establish or re-establish their credit history.
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