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Secured credit cards

Secured credit cards explained

Ella Jukwey
Written by  Ella Jukwey
Jonathan Leggett
Reviewed by  Jonathan Leggett
Updated: 02 Apr 2024

If you’re considering getting a secured credit card, our guide tells you all you need to know…

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.  

The deposit you put down is usually equal to your card’s credit limit (the maximum amount of money you can borrow). In the eventuality you don’t pay your credit card bill, your credit card issuer can take the money from your deposit. Secured credit cards are not very common in the UK. 

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.   

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

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, than if you were applying for an unsecured card.  

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 an unsecured credit card. 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 because 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 

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 low 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 convenient for everyone 

  • High fees: You can face high fees and interest charges if you don’t 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 unsecured credit card issuer, they may allow you to ‘graduate’ to an unsecured credit card. If you’ve used the unsecured card responsibly then you can ask your provider about switching to an unsecured credit card. You can always apply for an unsecured credit card; you’ll be more likely to be approved if your credit score is strong. 

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

Here’s what could happen if you miss a payment on your secured card: 

Don’t pay by due date 

Charged a late fee 

30 overdue 

Hit with a late fee and interest on your balance 

60 days overdue 

Interest rate might increase drastically 

90 days overdue 

Your credit card account could be closed and you lose your deposit 

120 days overdue  

Debt collectors may get involved  

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

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. 

 

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