What is a Secured Credit Card

What is a Secured Credit Card?

A secured credit card can help you establish or reestablish your credit. Making timely payments and managing your balance with a secured credit card can be a good step to raising your credit score, and eventually qualifying for a traditional credit card.

In addition, secured credit cards are also backed by a cash deposit from the cardholder. The deposit functions as collateral held by the lender to secure the funds 

Who's it For? 

There are two groups of people who may benefit significantly from using a secured credit card:

  • People with little to no credit history
  • People who may have missed a few credit card or loan payments

When lenders are making decisions for granting forms of credit, such as home loans or car loans, your credit history plays a pivotal role. If you have no credit history at all, that can actually work against you. This is where a secured credit card can be a big help: Making timely payments on a secured card with a balance as low as a few hundred dollars can be the first step in establishing yourself financially, and assist you in getting a healthy credit score. 

How Do They Work? 

A secured credit card works just like a traditional (unsecured) credit card – you make a purchase using it, and you'll make a payment on the card that goes to the issuing financial institution. The one key difference in a secured card compared to a traditional one? The collateral you're required to put down first.

The required deposit varies by lender. The main factor that determines how much the issuer is willing to lend is how much you pay in collateral up front. For BECU, the required minimum deposit is $500.

Who Issues Secure Credit Cards?

Most of the leading credit card lenders, such as credit unions and banks, all offer secured credit cards. Cardholders can use the card anywhere the brand is accepted, and they can even be eligible for perks and rewards if used responsibly. 

And, just as is the case with traditional credit cards, a secured card can be subject to fees, including but not limited to monthly maintenance fees and late payment penalties. One other fact worth noting: The APR (annual percentage rate) of a secured card is often higher than their unsecured counterparts. As of Oct. 23, 2019, the average credit card APR is 17.37%. At BECU, the same interest rate applies to secured and unsecured cards.

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