What is a Secured Credit Card?

Learn the Difference Between Secured and Unsecured Cards and How They Can Help Your Credit Score.

If you’re working on improving your credit score and having a hard time qualifying for credit at the same time, this blog post is for you! This situation can be an extremely frustrating one, but we are here to help you through it. You may be asking yourself, “How can I possibly build my credit if I’m not even able to qualify for a credit card?”, and that is actually a great question. Our goal with this post is to explain the difference between secured and unsecured credit cards along with how and when they can benefit you.

When most people think of credit cards, they think of cards that offer cash back, travel incentives, air miles, interest free periods, etc. These credit cards are actually unsecured credit cards, which means they do not require cash collateral in order to obtain them. That being said, if you have good or acceptable credit, you have a better chance of qualifying for an unsecured card. However, if you have poor credit, you become a higher risk customer in terms of paying back your debts, therefore qualifying for an unsecured card can be extremely difficult, if not impossible, depending on your credit situation.

If you find yourself in the latter situation, with poor credit or no credit, it is not the end of the world. While a secured card requires a collateral deposit, the good news is that anyone can get a secured card as long as they are able to pay said collateral deposit. Typically you can find secured cards at the same institutions you can find unsecured cards starting at $300 for your deposit. Once the deposit is paid, your secured card works just like an unsecured card. You will incur interest if you don’t pay off your balance on time, your credit will be affected in relation to how much of your limit you spend, etc. The main difference is simply the deposit you put down up front in case you don’t pay off your debt.

After you have paid the deposit, the next step is understanding that the amount you pay for the deposit is also your credit limit for that card. For example, if your deposit it $300, then your credit limit is $300. Simple. The harder part is managing that available credit responsibly. Understand that getting a secured card is to help build your credit to a score that will help you qualify for an unsecured card. Many institutions will actually transfer your secured line of credit to an unsecured line of credit once you are able to qualify. That being said, having low balances and paying off your balance at the end of each month are the behaviors that will over time increase your score, regardless of whether it is a secured or unsecured credit card.

Credit scores are like fingerprints; every single one is unique and requires different action. It can be extremely difficult to determine what to do next or what to do at all if you are stuck with poor credit. At Tru Path Credit, we have the art of credit repair boiled down to a science. If you need help with your credit, click here and we will get you started on your path to great credit with a unique action plan based on your situation.