By U.S. News Staff | Updated May 4, 2018
If used responsibly, secured credit cards can help you raise your credit score and improve your financial standing. Secured cards are most beneficial for:
- People with poor FICO scores (579 and below)
- People with no credit history who want to establish good credit
Because secured credit cards are a tool for people who already have credit problems or need to build a credit history, it’s important to understand exactly how secured credit cards work and which are the best ones available to you.
Best Secured Credit Cards of 2018
- Discover it Secured Card: Best for cash back rewards and no annual fee
- USAA Secured Card Visa Platinum Card: Best for military benefits and no penalty APR
- SDFCU Savings Secured Visa Platinum Card: Best for cash back rewards, no annual fee and low APR
- Wells Fargo Business Secured Credit Card: Best business secured card with cash back rewards
- Capital One Secured Mastercard: Best for no annual fee and free monthly credit score
- Navy Federal Credit Union Rewards Secured Credit Card: Best for veterans with rewards and no annual fee
Best for cash back rewards and no annual fee.
Limited / Bad Credit
Best for military benefits and no penalty APR.
11.40% - 21.40% Variable
Best for cash back rewards, no annual fee and low APR.
Best business secured card with cash back rewards.
Best for no annual fee and free monthly credit score.
Best for veterans with rewards and no annual fee.
Do You Have Bad Credit?
Your financial standing is defined in large part by your credit score, which is a numerical grade of your creditworthiness. Lenders use your score when making their approval decisions to determine how likely you are to repay debts. There are a few different credit scoring models used by the financial industry, but the FICO score is by far the most commonly used.
Your FICO score is calculated based on the data in your credit report collected by the three major credit bureaus: Equifax, Experian and TransUnion. That data includes things like your outstanding debt, payment history, defaults, judgements and bankruptcies.
FICO score ranges are:
- Exceptional (800+)
- Very good (740-799)
- Good (670-739)
- Fair (580-669)
- Poor (579 and below)
Bad/poor credit generally refers to scores of 579 and below. When you have a bad credit score, you have very little creditworthiness. It can be nearly impossible to get approved for a traditional credit card with bad credit. The same is true if you are a new user with no credit history at all.
What Are Secured Credit Cards?
For those unable to qualify for unsecured credit cards with good terms, secured cards can be a good first step toward improving your credit score. Designed specifically for people with bad credit or no credit, secured credit cards operate similar to regular credit cards, except that they are secured with a cash deposit. The deposit is a protection for the bank/lender if the cardholder ever defaults on a payment. If you have a secured credit card and you don’t make your payments, the credit card company can use your deposit and you won’t get it back.
How do secured credit cards work?
To open a secured card, you must make a cash deposit with the creditor. The creditor places your deposit into a secure account that you can’t access for as long as the card is active. If you miss any payments, the lender withdraws from that account to pay the overdue balance.
It is important to remember that a secured card is not a prepaid card. You are not withdrawing from your deposit every time you use it. Just like an unsecured credit card, you must pay the balance, a portion of the balance or at least the required minimum payment by the due date. If you miss enough monthly payments, the creditor will use your deposit to pay your balance. If that happens, the effect on your credit score is the same as if you defaulted on an unsecured card.
Benefits of secured cards:
- Easier approval because of lower creditor risk
- Lower APR than most traditional cards designed for people with bad credit
- Lower credit limits reduce the risk of overspending
- You can usually qualify for an unsecured credit card with a higher credit limit and no deposit if you demonstrate responsible credit use with a secured card.
Drawbacks of secured cards:
- High initial cash deposit
- Low credit limits can result in a high utilization ratio, which hinders your credit score
Find a complete list of the Best Credit Cards for Bad Credit and learn about more strategies for rebuilding your credit.
Choosing a Secured Credit Card
For secured credit cards, the most important features are:
- Annual fee
- Credit limit
- Initial deposit
The annual fee and initial deposit are money you’ll have to spend even if you never use the card, and a card’s credit limit can significantly influence your credit score.
There are very few secured credit cards that don’t charge an annual fee. The fee is charged directly to the balance either in one large sum or divided into monthly installments, starting on the day you open the card.
Credit limits on secured cards are typically much lower than traditional cards, so once you’ve established a history of making on-time payments, you should ask for a credit limit increase. With a higher credit limit, you can lower your credit utilization ratio, which can improve your credit score. Many secured cards will evaluate a cardholder’s payment history after five to 12 months.
The security deposit must be paid before the card is opened. The amount will vary based on your credit history, but it is typically around $200 to $500, or 50 to 100 percent of the card’s credit limit. The deposit is a significant upfront expense that you won’t get back until the account is either closed or upgraded to an unsecured card.
To save money and protect your credit score, you should look for a card with the lowest possible annual fee and security deposit. Additional features to consider include:
- Additional fees such as monthly maintenance and initial processing fees
- Ability to upgrade to an unsecured version of the card
- APR/penalty APR
- Credit bureau reporting
For complete information on all of these card features and how to evaluate them, read the U.S. News guide to Best Credit Cards for Bad Credit.