What are Secured Credit Cards? And How to Use it Efficiently to Build Credit
Azpire Credit Builder Card Secured Credit Cards US Secured Credit Cards

What are Secured Credit Cards? And How to Use it Efficiently to Build Credit

Moumita Basu

People can benefit significantly from secured credit cards, especially in the process of building credit. Secured credit cards are intended for those with difficulty getting a traditional credit card, such as those with a bad credit history or little credit history, or new to credit. The deposit is necessary for the issuer to mitigate the increased risk of giving credit to people with bad or without a credit history.

If you fall in any of the above categories, don’t worry; you can easily and quickly build your credit with secured credit cards. Here is everything you should know about secured credit cards before starting, with reasons why you should choose secured credit cards. Let’s start!

What are Secured Credit Cards?

Secured Credit Cards Definition: Secured credit cards are credit cards that the cardholder backs up with a cash deposit. The card issuer has security in this deposit, which is collateral on the account if the cardholder cannot make payments. When you apply for a secured credit card, the amount of the deposit you make becomes your credit limit.

ALSO READ: Secured Credit Card V/s Prepaid Debit Card

How Does Secured Credit Work?

With a secured credit card, you can make purchases the same way you would with an unsecured credit card. The main distinction is that the security deposit you provide the card issuer when starting the account "secures" the card. As a result, even if you have no credit history or a low credit score, the card issuer may be more inclined to approve your application because it lowers the risk.

  • You pay the charges on your monthly statement when it arrives. (Your deposit is not applied to the purchasing price. See below for a comparison of secured and prepaid cards.)
  • If you have a balance, interest will be charged.
  • You can establish or repair your credit by using the card sensibly and making your payments on time.

The majority of significant credit card issuers provide both secured and unsecured cards. Although annual fees are typical, you shouldn't shell out more than $50. Among our best-secured cards, there are numerous choices with no annual charge, like Azpire Credit Builder Card.

MUST READ: How to use a secured credit card to build credit?

What are the Application Procedures for Secured Credit Cards?

Similar to how you would apply for a standard credit card, you can apply for a secured credit card. They all have the same appearance and are issued by the major credit card companies Visa, Azpire, Mastercard, Discover, etc.

Cardholders may be qualified for benefits and rewards and can use their card anyplace that the card brand is accepted. Additionally, cardholders receive monthly bills that detail both their end-of-period balances and card used for the previous month. They must pay at least the minimum amount due and, as specified in the credit agreement, interest on any unpaid balances.

What are the Major Benefits of a Secured Credit Card?

Using secured cards has several benefits. You can build your credit profile, gain experience using a credit card, and prepare for a card with better benefits or a bigger credit limit with the help of a secured card.

  • Use the secured card to build an excellent credit score:

Use a secured card to assist you in establishing a solid track record if you're trying to establish or repair your credit. That entails acting correctly when using your card and making at least the minimum payment on time each month. Remember that late or missed payments could damage your credit, so always try to avoid this situation.

  • Boost your credit limit and gain interest on your fixed deposit:

Customers who choose a secured credit card need to pay the processing charge; they can increase their credit limit and earn interest on their fixed deposit. This card can assist users in raising their credit limit and generating interest on fixed deposits.

  • Get low-interest Loans:

Banks typically only give credit cards to customers with excellent credit history. As a result, even without a regular credit card, a person can work on establishing a solid credit history with secured credit cards. By making on-time payments on a secured credit card, a person can also improve their credit score.

ALSO READ: Best Secured Credit Cards for Bad Credit

What are the differences between Secured and Unsecured Credit Cards?

Here are the differences between secured and unsecured credit cards:

                  Secured Credit Cards 

                            Unsecured Credit Cards

  • Require a refundable security deposit.  

  • No deposit is needed to open an account.

  • Secured credit cards are simpler to obtain if you have bad or no credit. It may be more challenging to be approved for an unsecured card if you have bad or no credit.

  • APR could be more expensive than what you'd get with an unsecured credit card. This is typically associated with a lower APR than secured credit cards.

  • The amount of the security deposit usually determines your credit limit.

  • The card issuer decides whether to grant or deny credit based on your credit history, credit score, income, and other variables.

  • If you default, the card issuer may utilize the deposit to settle your balance.

  • Your credit limit is based on how creditworthy you are.

READ MORE: Difference between secured and unsecured credit cards

How Can You Build Credit with Secured Credit Card?

Use your secured credit card responsibly to build credit. The below-shared tips about secured credit cards will help you build your credit fast.

  • Always settle your balance each month: In addition to incurring interest fees, carrying a load on your credit card might raise your credit utilization ratio, lowering your credit score. If sometimes you cannot pay your balance in full, make at least the minimum monthly payment. Then make an effort to reduce the balance as quickly as you can
  • Monitor your credit rating: You'll want to find out how your card usage impacts your credit score because having a secured credit card is frequently done to improve credit. Free credit monitoring is available with some secured credit cards. If yours doesn't, Experian offers free credit monitoring; join up today
  • Keep your credit utilization minimal: The percentage of your available credit that you are now using is known as your credit usage ratio. Maintaining a percentage under 30% can raise your credit score. It would be better if you always were careful to spend below a 30% ratio because secured credit cards typically have minimal credit limits. Keep your balance below $60, for instance, if your card's limit is $200
  • Maintain your spending: By keeping an eye on your expenditures, you can avoid accruing debt that will be challenging to pay off. To prevent overspending, you can monitor your card usage using the mobile app provided by your credit card provider

Secured cards are the best option if you've never had a credit card or have a poor credit history and want to raise your credit score. For college students, secured cards are a good choice.

ALSO READ: Denied for Secured Credit Card

Keep in mind that establishing good credit takes time. But a secured card, such as an Azpire Credit Builder Card for building credit with zero annual interest rate, could assist you in taking steps toward a safe and brighter financial future.

Frequently Asked Questions (FAQs)

What is the purpose of a secured credit card?

The primary objective of using a secured credit card is to repair adverse credit. The most effective instrument for the job is a secured card because it offers a practically assured acceptance rate and sends account information to the leading credit agencies every month.

How do secured credit cards work?

When applying for a secured credit card, you must pay a cash security deposit to start an account. Some free secured credit cards are also available. One of the best among them is the Azpire Credit Builder Card. Secured credit cards are easier for persons with weak credit or no credit history because the deposit shields the issuer from losing money if you don't pay your payment.

What is the definition of a secured credit card?

A secured credit card means that a deposit must be placed with the credit card company to open an account. The amount is referred to as a security deposit. Like the security deposit paid to a landlord to rent an apartment, it is maintained by the credit card issuer while the account is open.

With a secured credit card, can I get my deposit back?

You will receive your deposit returned if you end your secured card account in good standing, which means you have made all required payments. You need to refund your deposit if you switch your account to an unsecured card from the same issuer.

What is the best amount to put on a secured credit card?

You should start with a small security deposit of around $200. This gives you some credit to make purchases with, and with the proper budget, you can save this amount in a few months. Now, you can get credit cards like Azpire free of cost. So the important thing is to begin your credit journey.