Do you really need a secured card if you have bad credit?

14.10.2024 - 20:56 / thepointsguy.com

Whether you're buying a home, leasing a vehicle or applying for a new credit card, a healthy credit score has a significant impact on attaining a low interest rate or upping your approval odds. If you have poor credit or no credit history, getting a loan or line of credit may prove to be a challenging quest toward your financial goals.

A commonly suggested strategy to help build — or rebuild — your credit score is to apply for a secured credit card. A secured credit card requires a refundable security deposit in exchange for a line of credit when the account is opened. These cards typically lack meaningful benefits. They also don't earn any rewards or have a minimalist earnings structure.

Given that secured cards aren't exactly the most appealing products out there, are they really necessary? Let's dive deeper into the world of credit-building to find out.

Before you click 'submit' on that new credit card application, make sure you've checked your credit score. Luckily, there are many ways to check your credit score for free. By knowing your score beforehand, you'll have a better idea of what credit card products you may qualify for and what interest rates to expect.

Credit scores range between 300-850, with a credit score of 720 or above considered excellent. Most rewards credit cards will require a credit score of 670 or higher.

If you want to open an unsecured credit card, you'll have a difficult time if your score falls below 670. It isn't impossible, but the only cards you'll have a chance for are beginner options.

The reason a credit card is such a useful tool for building your credit is that credit issuers report your credit card balances to the three major credit reporting agencies — Equifax, Experian and TransUnion. If you're paying your credit card balance in full and on time each month, you'll likely experience a rise in your credit score over time.

If you own an unsecured credit card, that account information is guaranteed to be on your credit report. The majority of unsecured cards issued by major banks report to the three credit bureaus, but some may only report to one or two. However, not all secured credit cards report to all three major credit bureaus.

That can be a compelling reason to favor an unsecured card. Before applying for a secured card, double-check whether they report your score to credit bureaus.

Contrary to secured credit cards, unsecured cards do not require a security deposit for approval. The amount you put down as a deposit is essentially your credit limit.

If you have low income or bad credit, issuers want some sort of reassurance that they'll get the money you spend back in some way. That's why it can be very difficult to get approved for an unsecured card when