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What are Secured Credit Cards?

September 28, 2021 by Space Coast Credit Union



Maybe you’ve ran into the following paradox: How do I get a credit card with less than stellar credit (or no credit) if I need a credit card to improve my credit? You’re in luck because secured credit cards break this cycle. They can help lay a more solid credit foundation or resurface a sinking score. And no worries, it looks just like a regular credit card, so no one else will know that it’s secured but you (and the issuing lender).

Here at Space Coast Credit Union, we’re dedicated to helping our members in any way we can. We offer a Visa® Secured credit card to help you build your credit and get you one step closer to achieving your financial goals. Because after all, a more robust credit score can lead to securing better rates for loans, other types of credit cards, lower insurance premiums, and even lower deposits for apartments. Keep reading for the full 4-1-1 on secured credit cards. 
 

What is a Secured Credit Card?

Secured credit cards work just like credit cards, but they’re tied to a refundable security deposit that the borrower pays. This deposit is collateral for the lender, making these cards less risky to issue to borrowers with low or no credit. 

The required deposit amount varies by lender and could be anywhere between $200 and $2,500, and this amount usually equates to the credit line limit for the card. If the borrower defaults on their credit card payment, the lender will “dip” into that deposit to cover the balance. And no sweat, if you close a secured card that no longer has a balance, the lender will return your deposit! 
 

Secured Credit Card vs. Unsecured 

Because secured cards have a deposit as collateral, they’re like “training wheels” in a sense. The purpose of these cards is to help borrowers manage their balance and improve their credit. With a better score, borrowers have a greater chance of graduating to an unsecured credit card. For example, after one year of good payment history at SCCU with a Visa® Secured credit card, you’re eligible to apply for a Visa® Platinum

Most credit cards are unsecured, meaning they’re not tied to any collateral. Lenders will look at your credit score and history. Borrowers will usually need to meet certain credit requirements in order to receive approval for an unsecured card. 

Also, the rates for secured and unsecured cards can vary greatly. As of 2021, the average APR for credit cardholders with excellent credit is 13.07 percent. While for secured cards, the average APR is 17.75 percent. (Psst, SCCU’s Visa® Secured credit card’s rates are as low as 14.24 percent with 0 annual fees.) 
 

How Does a Secured Credit Card Work?

Let’s say the day has finally arrived: You get your secured credit card in the mail. Hooray! Now you can employ that piece of plastic in person and online wherever credit cards are accepted. But wait, how often should you use a secured credit card? It’s a good idea to only use it a couple of times a month for small purchases. While an Amazon shopping spree might cross your mind, remember, the goal is to use this card responsibly to improve your credit score. 

Like with any credit card, you’ll still get a monthly statement with the balance amount due and its due date. As long as you pay your balance on time every month, you’re building your credit. Your payment history plays a key role in showing lenders that they can trust you in the future with unsecured cards. 

Keep in mind that if you carry a revolving balance, you’ll start to accrue interest. A revolving balance can increase your credit utilization ratio — the percentage you are using of your available credit. Anything above 30 percent can hurt your credit score and raise red flags for lenders.  

Credit bureaus gather how often you make payments on time, your credit utilization ratio, and how long you’ve used the card. So by paying off your total balance on time every month for a lengthy time frame (and only using a small amount of your credit line), you can improve your credit score.  
 

Benefits of Secured Credit Cards

Before applying for a secured credit card, it’s a good idea to shop around and explore your options. Some cards will have intro APRs, which allow you to take advantage of a lower rate for a certain timeframe before it increases to a higher APR. Be sure to carefully review everything the card offers to ensure you’re getting the most out of it and that it’s right for you. See some benefits they offer below:
 
  • They help build credit: Unlike debit cards and prepaid cards, secured cards report your payments to one or more of the three consumer credit bureaus. It’s a good idea to get a secured card with a lender that reports the usage to all three credit bureaus. As a member of SCCU, you can see your FICO Score for free in your Online Banking account.
  • Borrowers with no or low credit usually qualify for them: The requirements for secured credit cards vary, but borrowers without good credit can generally qualify because the deposit acts as the “insurance” for the lender. 
  • They offer fraud prevention features: Most secured cards will arm you with several security measures against fraud, such as Visa® Zero Liability Protection14, free Card Controls to lock and unlock your card, and ID Navigator Powered by NortonLifeLock46. Another plus at SCCU? Free 2Way Text Fraud Alerts ensure you’ll receive notifications of suspicious activity to stop attackers in their tracks. 
  • You can get additional perks: Some lenders offer insurance options, theft protection, and travel assistance. At SCCU, our Visa® Secured credit cards come with roadside dispatch, so if you lock your keys in the car, get a flat tire, or your car’s battery dies, you can get peace of mind that a vendor will take care of you (at a set price per service call). 
 

Frequently Asked Questions 

It’s understandable to have a couple of questions before applying for a secured card. And if you’re feeling a tad overwhelmed, we’d like you to put your mind at ease as much as possible. Our Express Services Team is more than happy to answer any additional questions you have. Let’s take a look at some of the most common questions:  

What is the minimum deposit for secured credit cards?

The minimum and maximum deposit amount will vary by lender. Just a reminder, many lenders will merely place a “hold” on the funds so that it’s not available to be used. (However, you may still see the money included in your overall balance.) Here at SCCU, our minimum deposit is $300.

What credit score is needed for a secured card?

Some lenders will check your credit for a limited history or a minimum score, which entails a hard inquiry or a “pull.” (Also, be sure to keep in mind that applying for more than one credit card at a time can reduce your score by a few points.) You’ll be happy to know that at SCCU, there is no minimum credit score needed to qualify for a Visa® Secured credit card.

How fast can I build credit with a secured credit card? 

Unfortunately, it’s impossible to accurately predict how fast secured credit cards will build your credit since many variables exist. The payment history on other trade lines, the number of opened trade lines, the number of recent credit inquiries, and overall credit card usage all play a role in determining your credit standing. Good payment history certainly helps with improving your score. However, the lender won’t know for sure one way or another how fast someone’s credit will improve. 
 

Additional Ways to Build Credit 

Secured credit cards offer an ideal way for anyone 18 or over to build their credit score, but you’ll be glad to know you can employ other methods to improve your credit! For example, you could look at having a relative or partner with good credit add you as an authorized user to the account. Just be sure to check with the credit card lender that they report your card usage to the credit bureaus as well. 

Also, students can apply for credit cards made just for them. (Just an FYI: The CARD Act of 2009 requires that new card applicants under the age of 21 with monthly income less than the credit card’s limit will need a co-signer that meets certain requirements.) At SCCU, we offer a Visa® Student credit card, which allows students between the ages of 15-18 to get a head start on building their credit. 
 

How to Open a Secured Credit Card

You can easily apply for a Visa® Secured credit card at SCCU conveniently online in just three easy steps:
 
  1. First, we’ll request your desired credit limit. 
  2. Next, we’ll ask for some personal and financial information along with some important documents.
  3. We’ll evaluate your information and get back to you quickly via your preferred contact method. 
As long as you qualify, we’ll mail your card straight to you. You’ll then be well on your way to building a better credit score! 
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