Transcription
Hey there, I'm Jeff with creditcards.com. Today we're talking about secured credit cards. We'll go over the basics of what you need to know, but if you want to see some specific recommendations, we have an entire guide on our website dedicated to just the best secured credit cards. I'll link that down below in the description for you, as well as a bunch of other resources that you'll want to check out.
For now, though, we'll talk about what a secured credit card is, who it's designed for, how it's different from an unsecured credit card, and then some of the main considerations that you have before you end up signing for a card. So hopefully, I earn your thumbs up. You enjoy the video. You find it helpful. If that's the case, we would really appreciate a thumbs up and and hopefully you end up subscribing to our channel. Um, you know, we're going to do a lot of videos about credit cards and credit more generally, and so I do think you're going to get a lot of value out of this channel.
All right, so what is a secured credit card? Well, it's a credit card that is designed for people with poor credit or very limited credit history, and the goal of a secured credit card is to help you build credit over time. Now, they will require a refundable deposit, and generally, that refundable deposit is your credit limit. So essentially, you're exchanging money today for a credit limit and the opportunity to build credit over time. So let's say you give the issuer worth $300, then your credit limit is oftentimes around $300. And so the goal again is to help you systematically build credit over time and to not get over your skis beyond your credit limit and to obviously limit the downsides for the card issuer. Now, often times after you pay your bill on time for several months, you build trust and you build credit, you can call up the banker issuer and ask them to increase your credit limit. That sometimes happens.
So how are secured credit cards different, though, from unsecured credit cards? Well, the simple answer is that a secured credit card requires that refundable deposit up front, whereas an unsecured credit card does not. Now, there are some card issuers out there that specialize only in secured credit cards, whereas there are some other ones that have both secured and unsecured credit cards. And there might be an advantage with going with those because down the road, there is the option that you might be able to product change your secured credit card for an unsecured credit card, so you don't have to have the refundable deposit. That might take a year, 18 months, 24 months, or longer, but that might be an advantage of going with an issuer that has both secured and unsecured credit cards. That way, when you get to a point where you've built up your credit, you're pretty confident in your situation, instead of opening up a new credit card, maybe dinging your credit in the short term, you can just product change your secured credit card for an unsecured credit card, and you're not opening up any new line of credit. Again, that works in theory. A lot of card issuers will allow you to do that, but it depends on your particular circumstance. But if it was me and I was looking for a secured credit card, I would look for the option later to upgrade to an unsecured credit card because you get better rewards, oftentimes a higher credit limit, and then, you know, we'll throw up on the screen some of the other pros and cons, kind of of unsecured and secured credit cards. You can pause the screen to look these over. I just bring all this up because I think it is a consideration that you might have in the future. I know we've done other guides or articles that talk about this topic or touch on it, and I'll try to link those for you down below in the description.
Now, another thing that you want to look out for is the annual fee. It's pretty common for a secured credit card to charge a very modest annual fee, somewhere between maybe $30 to $50, but then other brands or issuers do not charge any annual fees. So that's another thing to kind of factor into your calculus.
And beyond a secured credit card, there are even alternatives to building your credit. So let's say you don't want to do a secured credit card, that's not the only way to build credit. There are some other viable options. For instance, you can ask to be added as an authorized user on the credit card from one of your friends or family members, and the advantage there is generally a much quicker approval process, and you're sort of piggybacking off of that credit card and your friend or family member. So if you default, so if you actually don't pay your credit card bill, it's on them. It actually will show up on them. They have to pay the entire bill if you don't. So you really want to go with somebody that, uh, that you trust and they trust you. But it can be a really good way to build credit over time. This is what I did originally to build credit. I was on my father's, uh, gas card. He had a gas credit card from, I think, Valero, if I, if I remember correctly. But in any case, that's how I built credit. I was added as an authorized user. Now, this is clearly not an option for a lot of people out there. If you're a little bit older, then you probably don't feel comfortable asking to be added as an authorized user, but it is a relatively good option for younger people, and it will help you to build credit if you're being responsible as an authorized user.
Now, yet another option is for people that have fair credit. You don't have bad credit, and you have some credit history. If you're sort of kind of in that no man's land territory, fair credit, anywhere from maybe 580 to maybe 670 credit score, you might want to look into a retail credit card from a big box retailer. Generally, they have a lower threshold to being accepted, not always, but, you know, sometimes you can be approved for these credit cards with just a fair credit score, again, anywhere from like maybe 580 to 670, somewhere right around there. And those credit cards are still unsecured credit cards. You can still build credit with those, although the rewards are kind of specific or measly, and the interest rates are generally higher. But remember, if you get a credit card, pay it off every time, you don't have to worry about the interest rates.
And that's about it. That's what you need to know about secured credit cards. I mean, obviously, I did not cover every single detail under the sun. I'm sure our website has a lot more details for you. Again, there are a lot of resources for you down below in the description. If you end up getting a secured credit card, I'd recommend checking out our guide to the best secured credit cards. Um, if you've decided that maybe you qualify for something else, I really would say that, you know, creditcards.com is one of the best sources out there for finding information about credit cards and credit more generally. So if you want to help us out, check that out. Give us a thumbs up, and hopefully we earned you being a subscriber to our channel. Have a great day.
[Music]