What is a Secured Credit Card? The Pros and Cons

A woman using a laptop with a credit card on it.

When it comes to obtaining a traditional credit card, a lack of a strong credit history can feel like a dead end. Whether you have no credit history, or a less-than-great credit history, opting for a secured credit card could be a good option for you.

Unsecured credit cards do not require an upfront deposit, however, they require decent credit to gain approval. Not to be confused with a prepaid card, a secured credit card is a unique type of credit card that requires a cash security deposit.

The payment history of a secured credit card is reported to the three major consumer reporting agencies. They can serve as powerful tools for building and improving credit!

Let’s break down why a Secured Credit Card could be right for you!

Why A Secured Credit Card?

  1. Building your credit is your main priority. Secured credit cards can be a good fit for someone who has a lack of credit history or poor credit history. Whether you are rebuilding your credit or establishing your financial footprint, these credit cards can be a good option to get you started.
     
    As a credit card holder, you can use the card up to the credit limit. As you pay down the balance, the available credit will increase. It’s incredibly beneficial to your credit score to pay more than the minimum on your credit card bill or completely paying off the balance by the due date.
  2. You have struggled to get approved for unsecured cards in the past. Since you are required to pay a deposit as collateral to start your secured credit account, it is much easier to get approved for this type of credit card.
     
    In most cases, your initial deposit determines your credit limit. This deposit is used for collateral in case you default on a payment and reduces the risk to the card issuer. Should you decide to close the account and you have paid your balance in full, the issuer will return the security deposit upon meeting all the requirements. Less financial risk = Easier approval!
  3. You want to learn financial responsibility. If you are new to the credit world, starting out with a secured credit card can be a great tool to help create a strong sense of financial responsibility. A low credit limit can make strategic budgeting choices easier and prevent overspending. Create good financial habits and prepare yourself for a seamless transition into an unsecured credit card!
  4. You’re looking for a sense of security. Carrying cash or a prepaid debit card or gift card can be a liability if the cash or card is loss or stolen. Opting for a secured credit card gives you a similar sense of security as an unsecured credit card. You can use the card at places that may not accept a debit card and you have an institution looking out for you in providing fraud protection. You can rest assured that your personal information is protected and that your institution has your back in the case of unauthorized transactions.

While a secured credit card is a valuable tool for those looking to establish or build their credit, they do have downsides. Let’s take a look at the reasons why this type of credit card may not be right for you.

  1. You want a credit card that boasts a strong rewards profile. Secured credit cards are focused on establishing and rebuilding credit, and often do not offer reward programs. If you prioritize earning points, travel miles, or cashback, you may instead want to look into an unsecured credit card.
  2. You are ready for a high credit limit. Since your initial deposit determines your credit limit on a secured credit card, you may need to set aside a large sum of money equal to the credit limit you desire. OneUnited Bank’s UNITY Visa® Secured Credit Card deposit limit maxes out at $10,000. If you are seeking a higher limit, you should know that all credit card companies – either secured or unsecured – will evaluate your ability to pay when reviewing your application.
  3. You want to make large purchases that you can pay off over time. A secured credit card is not an unsecured loan. You are essentially using your own money as collateral and cannot use your security deposit to pay off your balance. If you’re looking for a card that will allow you to make big purchases, without a security deposit and pay back the loan over time, a secured credit card may not be the right option for you.

Why choose the OneUnited Bank UNITY Visa® Secured Credit Card?

OneUnited Bank’s secured card is a great option because of the fixed, low APR rate compared to competitors, which have variable, higher rates! A lower APR means less money paid in interest and other charges, and more money in your pocket. A lower APR can help you save money and achieve your financial goals more efficiently.

In conclusion, a secured credit card can be a valuable financial tool, especially for those with limited or poor credit history. It serves as a steppingstone toward building and improving your credit and offers several advantages. However, it’s always essential to weigh the pros and cons carefully.

If you’re considering a secured credit card, the OneUnited Bank UNITY Visa® secured credit card stands out with its low, fixed APR, making it a popular choice for many. Ready to get yours? Learn more and apply today!

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