What are secured credit cards?

Key takeaways

• A secured credit card requires an initial deposit as security

• The deposit equals the card’s credit limit

• These cards are aimed at people with low credit scores

• Timely payments, low credit utilisation, and responsible use can improve your credit score

What is a secured credit card?  

A secured credit card is a type of credit card that requires you to pay an initial deposit as security, but they’re not common in the UK.

The deposit you put down is usually equal to your card’s credit limit (the maximum amount of money you can borrow).

If you’re not able to pay your credit card bill, your credit card issuer can take the money from your deposit.

You’re more likely to come across credit cards for those with poor credit scores, or credit builder cards in the UK – which are both aimed at those with no, or limited, credit histories.

How is it different from a traditional credit card?  

Most traditional credit cards are ‘unsecured’, meaning you don’t have to pay a deposit to get one. Instead, the lender looks at things like your income and credit history before deciding whether it will approve you for a credit card.

Because you’re not putting down any security on the card, the level of risk for the lender increases.

Conversely, a secured credit card requires you to pay a deposit as security, and so represents less of a risk for the provider.

That means you may have a better chance of being accepted for a secured credit card if you’ve got an impaired credit rating.

However, having a low credit rating doesn’t necessarily mean you can’t get an unsecured credit card. There are bad credit cards tailored to people in your situation; just expect high interest rates and a lower credit limit.

How does a secured credit card work?  

Secured credit cards work similarly to unsecured credit cards. The key difference with a secured credit card is that you put down a cash deposit to open the account.

You can use a secured card to make purchases as well as making contactless payments.

Just as with an unsecured card, you’ll get a credit card bill every month and you should aim to make more than the minimum payment to avoid interest charges and clear your debt faster.

Who is eligible for a secured card?  

Secured credit cards are aimed at people with low credit scores. They seen as higher risk borrowers but the cash deposit lowers the risk for the lender.

One of the contributing factors to having a bad credit score is a history of missing repayments.

So, with a secured credit card, you’re mitigating that risk for the lender as they can use the funds from your deposit in case you can’t make a payment.

How does a secured credit card help to build credit score?  

A secured credit card can improve your credit rating if used responsibly. That means doing the following:

• Making payments on time

• Keeping your credit utilisation ratio low (ideally 30% or under)

• Paying off your balance in full

• Not going over your credit limit

For more ways of boosting your score, check out our full guide for improving your credit score.

What are the pros and cons of secured credit cards?  

Here are some of the advantages and disadvantages of secured credit cards: 

Pros 

• Lower eligibility requirements: If you don’t have the best credit score, a secured credit card can be easier to get than a standard credit card

• Can repair credit rating: Provided you make your payments on time, don’t go over your credit limit, and don’t have a high credit utilisation ratio you can build your credit score back up

• Refundable deposit: As long as you repay your balance, you can get your deposit back

• Can switch to an unsecured card: If you’ve managed your card well, you could upgrade to an unsecured card

Cons 

• Cash deposit: Having to make an upfront deposit isn’t always possible

• High fees: You can face high fees and interest charges if you miss your credit card payments

• Lower credit limit: As these cards are targeted at those with poor credit scores, it’s unlikely you’ll be offered a high credit limit

• High APRs: These cards tend to come with high APRs, which can make using them expensive

Can I switch to an unsecured credit card?  

Depending on your credit card issuer, they may allow you to upgrade to an unsecured credit card. This depends on how you’ve used the card and the decision is usually influenced by your credit rating. The stronger you can make your credit score, the more chance of approval for an unsecured or regular credit card.

What happens if I miss a payment on my secured card?  

Every credit card provider has its own rules over what might happen if you miss a repayment, but here’s what could happen:

What are the alternatives to a secured credit card?

A secured credit card isn’t a normal financial product in the UK, instead the following might be more suitable:

• Credit-builder card

• Bad-credit card

• Pre-approved card

• Secured loan

If you’re eligible for one, a standard credit card will usually offer the best rates. Using an eligibility checker can help to show you what types of cards you might be able to take out, without having an impact on your credit score.

Is it better to get a secured credit card or a secured loan?  

Whether it’s better to get a secured credit card or secured loan will depend on your financial situation and needs.

You’ll be able to borrow a larger amount with a secured loan and this might cost less in interest repayments than an unsecured loan.

However, with a secured loan you risk losing your house or whatever asset you’ve put down as security.

Secured credit cards can be an expensive way to borrow if you don’t keep up with repayments.

But if you use your secured credit card wisely, it can help you build up your credit score and upgrade to an unsecured card.

Kara Gammell
Personal Finance & Insurance Expert

Our expert says

“While it’s worth understanding how secure credit cards work, they aren’t a financial product that you’re likely to encounter in the UK.

"Because you have to put up a deposit, their worth lies less in giving you a facility to borrow and more in their ability to help you build your credit rating.

"But building a credit rating can be done in many other – and better – ways, including with a credit builder credit card, as our guide explains here.”

Compare credit cards with MoneySuperMarket 

Here at MoneySuperMarket, we don’t offer secured credit cards. However, if you’re looking to build your credit, you can compare credit cards targeted at those with low credit scores.

Comparing credit cards with MoneySuperMarket is quick and easy. Let us know the type of credit card you’d like, and you can browse our deals to find your next credit card.

MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.