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What is a secured credit card?

Secured credit cards are those that require a security deposit in order to be approved. Here’s how it works: when you apply for this type of card, you’re required to make a cash deposit, which usually corresponds to the credit limit you’ll have. For example: if you make a deposit of $200, your limit will be $200. This deposit acts as collateral for the card issuer.

How can a secured card help?

Whether you’re starting out from scratch or recovering from bad credit, secured cards can be the key to building a positive history. Just use the card responsibly: pay your bills on time and keep your balance low relative to the limit (ideally less than 30%).

What are unsecured credit cards?

Unsecured credit cards are those that do not require a security deposit. They are more common and are usually offered to people who already have a good credit history. With this type of card, the credit limit is determined based on factors such as your credit score, income, and payment history.

What are the differences between the two types?

Secured cards require a security deposit, which usually sets the credit limit, making them easier to approve, especially for beginners or people with bad credit. These cards are considered low risk by the bank, and are ideal for those looking to build or rebuild their credit history.

Which type of card is best for you?

The answer depends on your current financial situation. If you are starting from scratch or trying to rebuild your credit, a secured card may be the best option. Even though it requires an initial deposit, it is an excellent first step to accessing better cards in the future. Now, if you already have a positive credit history, you can go straight for an unsecured card.