The Pros and Cons of Secured Credit Cards

Sep 12, 2012 | Credit

By now, you’ve probably heard of secured credit cards. Secured credit cards work like this: You give the lender a security deposit, and then receive a credit line for that amount. For example, let’s say you give the credit card company $1,000 to put in your account. You will typically then have a credit line of $1,000.

But are secured credit cards really all they’re cracked up to be? Let’s look at the pros and cons of opening a secured credit card:


  • You can establish or rebuild your credit. If you are just starting out, the credit card companies may want to see some credit history before giving you an unsecured card. A secured card may be your only option. Likewise, if you’ve had credit problems in the past, such as having to declare bankruptcy, opening a secured credit card may be the best (and only) way to rebuild your credit.
  • Tip: Make sure the issuer reports to the three credit reporting agencies each month if your main goal is to build positive credit.
  • If you shop around, you can quite possibly find a good secured card with a reasonable annual fee and low interest rate.
  • Provided you make your payments on time and are a good customer, you can often qualify for an unsecured card after about a year or so with the same lender.
  • You will make interest on your security deposit. Typically, you will earn as much as you would with a savings account. However, you’ll be paying much more in fees than you’ll earn.


  • You’ll need to research lenders thoroughly beforehand.
  • There are more than a few shady companies out there, and if the bank you are dealing with fails or places other conditions on your account, you may have a hard time getting your security deposit back once you decide to close your account.
  • So, you’ll want to do your homework and make sure you choose a reputable company. One way you can do this is make sure your money will either be in a federally insured bank account or with a solid credit union. And watch out for online scams.
  • You could actually damage your credit further if you don’t have a solid payment plan in place. If you opened the secured credit card to improve your credit, the last thing you want is to lower your credit score even further. But, if you don’t pay your bill on time each month, the issuer might report that to the credit reporting agencies.
  • So if you’re trying to rebuild your credit because of late payments in the past, be sure you address the reasons why you previously paid late beforehand so you can avoid repeating the same mistake twice.
  • You may be subject to high fees. Virtually all secured credit cards come with an annual fee, so make sure that having a secured credit card accomplishes your desired outcome. The annual fees and interest rates are almost always higher with secured cards than unsecured ones, so make sure you can’t qualify for an unsecured card first.
  • Also, be sure to read the fine print of the terms and conditions, because some cards may use up a large chunk of your limit on fees before you ever spend a penny of it.

If you do decide to get a secured credit card, your best bet may be with a credit union as they generally offer the lowest rates. And make sure you weigh the pros and cons beforehand so you can make an educated decision.

This article has been reviewed and approved by Thomas A. Moore, managing attorney Brownstone Law Group, PC. California Bar # 148698. This article is for informational purposes only, does not provide legal advice of any kind or form any type of attorney/client relationship.

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The information contained on this website is not to be construed as legal advice. It is not intended to solicit or form an attorney-client relationship. Debt settlement, debt negotiation or debt resolution programs (the “Program”) are not an offer or promise to lend money and neither they nor Brownstone Law Group, PC. (“BLG”) assume or pay any consumer debt or make monthly payments. BLG is not affiliated with any lending institution, bank, collection agency or collection law firm. Individual Program results may vary and are based on but not limited to the ability of clients to save funds and successfully complete their Program terms and conditions, the amount and type of debts and creditors, history of accounts and financial standing of clients. Past performances of Clients do not guarantee future results for others and BLG does not guarantee that debts enrolled in the Program will be settled at a specific percentage or amount, or that you will be debt free within a specific time period. Not all Clients complete our Program for a variety of reasons including but not limited to an inability to save sufficient funds. The Program may have an adverse impact on Clients credit. Our services may not be available in all states please check with BLG for state eligibility. Please contact a tax professional to discuss potential tax consequences of settling debt. This website and the content of this website has been reviewed and approved by Thomas A. Moore the managing partner of BLG who’s mailing address is PO Box 629, Orange CA 92856-6629. Copyright Brownstone Law Group, PC. All rights reserved. Unauthorized use of the BLG website includes but is not limited to content copying, duplicating or replicating is strictly prohibited. Furthermore, use of this website is subject to the Terms of use.

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